MACRO ECONOMIC CONDITIONS
Key data
GDP forecasts for 2025:
+2.00%
(OBR)
+1.70%
(OECD)
+1.48%
(IMF)
CPI forecasts for 2025:
+2.40%
(OBR)
+2.70%
(OECD)
+2.00%
(IMF)
Unemployment forecasts for 2025:
4.00%
(OBR)
4.70%
(OECD)
4.10%
(IMF)
Inflation and interest rates heading in right direction but growth remains sluggish
The recently published surprise uptick in growth figures for Q4 2024 is positive news, but there remains the prospect of increased costs arising from National Insurance changes coming through in April. Another feature of the ongoing muted growth is the decision by the Bank of England (BoE) to cut its base rate of interest from 4.75% to 4.5% while hinting at more cuts to come.
While on the face of it, that cut appears helpful, it is reflective of the easing of the very inflationary pressures that generally depict a burgeoning economy, so it could be described as a double-edged sword. That said, the BoE is also currently warning that inflation will rise this year to 3.7% due to external influences, before falling back toward the target 2% figure. Furthermore, the BoE notes that widespread tariff imposition and changes to market relationships could have as yet unknown consequences for markets globally.
For the UK construction sector, total work output volume in 2024 rose by 0.36% year on year, inclusive of repair and maintenance work, but for new work there was a contraction of over 5%. All new work sectors except in the ‘public other new work’ segment recorded negative growth for the full year, emphasising the importance of a pipeline of new work coming through to the market from both the private and public sectors.
Looking at the ONS statistics for year-on-year growth in new orders volumes provides some limited comfort, with housing and private industrial still negative, but overall figures up by well over 3%, driven in particular by private commercial, up 16%. Given that the expansion is weighted more toward the early part of last year, that may mean that more of the high-value spend will be coming online shortly as projects progress out of the ground.
CONSTRUCTION PIPELINE PROSPECTS
Key data
New construction work done volume:
-5.33%
full year 2024 (ONS)
Repairs and maintenance work done volume:
+8.48%
full year 2024 (ONS)
Total work done volume:
+0.36%
full year 2024 (ONS)
New orders volume:
+3.49%
full year 2024 (ONS)
New orders up significantly overall but down in the housing sector
The end-of-year ONS statistics have provided mixed messages once again, with new orders up significantly, in volume terms, but new construction work down by more. Repairs and maintenance work is up once again, the time by almost 8.5%. Although not an issue at present, should the new work market expand as is expected, the labour intensity of repairs and maintenance work could exacerbate skills shortages across the wider market.
Drilling into new orders provides ample evidence of the fall away in housing, being down by 30% and over 11% in the public and private sectors respectively. Meanwhile, private commercial new order volumes bounced back, up by 16%.
Overall, housing’s negative figures were the dampener, as most other sectors, with the exception of private industrial, showed positive figures. However, such is the significance of housing, that the effect was to almost offset any overall growth in the new orders dataset. Given the government’s emphasis on easing the planning process, the upcoming year’s housebuilding statistics will be closely followed.
Both the CPA and BCIS are forecasting moderate workflow growth this year, with more to come in 2026, indicating a generally positive impression of the market, but much will be predicated upon the planning system delivering projects to bidding.
INPUT COSTS
Key data
Input costs forecast for 2024:
+2.87%
full year 2024 (BCIS)
Input costs forecast for 2025:
+4.25%
full year 2025 (BCIS)
Knock-on effects of tariffs could be market volatility and cost inflation
In the early stages of Trump 2.0, the spectre of the imposition of tariffs has been placed front and centre. While this topic may appear almost peripheral to the day-to-day realities facing UK builders, the knock-on effects globally are greater uncertainty, lesser levels of investment, added market volatility, and a host of other downstream cost-affecting factors.
Some of these facets would tend to compress tender price inflation, such as a reduction in investment (which focuses contractors’ interest on acquisition of replacement workload). But they may also enhance cost inflation, by simply making imported materials more costly if reciprocal tariffs are applied to incoming goods. While the UK imports relatively little construction material or components from the US, our manufacturers export quite high volumes there – adding to the complex interaction of global trade.
Taken overall, no-one wins in a trade war, a fact that underpins the development of the global network of tariff-free agreements that exist. The new ‘protectionism’ and retaliations may yet be short-term, but that will not necessarily nullify all the negatives.
Analysis by BCIS shows the General Building Cost Index marginally outstripping tender price growth last year and, as can be seen in this edition of Construction Market Intelligence, it is projecting something similar this year before a turnaround in 2026. The extent of the gap this year could be vital – and of concern to contractors and subcontractors alike as margins continue to compress.
TENDER PRICE FORECAST
Key data
RLB Weighted Average TPI 2024:
+3.12%
full year 2024 (RLB)
BCIS Tender Price Index 2024:
+2.66%
full year 2024 (BCIS)
Forecast for steady inflation could change if pent-up market demand is released
We are now well on the way through 2025, but much remains unclear as to how global geopolitical and trade matters will pan out. Although the UK government could dramatically drive up the construction industry’s workload in the next year, lead times will impact conversion of intent to output. With the Spring Statement and Spending Review both due in the next three months, how government spending will impact the industry should become clearer.
We are not currently forecasting a rapid breakout in tender prices, but rather a fairly lukewarm uplift of cost to clients. While it seems unlikely, that expectation could change in the event of a sudden rush-to-market, but such an outcome would be more likely in response to geopolitical uncertainty.
Nonetheless, that very reticence in the marketplace has given rise to pent-up demand that we have seen propel commercial projects to site last year, so there may be no better time to commence the process than now, rather than wait and risk being priced out of the marketplace.
Feedback from RLB offices around the country, and also via BCIS, indicates that even though workload supply is under pressure at present, the proposed changes to the planning regime, in particular in respect of shovel-ready’ projects, could drive up construction price inflation in light of unresolved supply-side factors such as labour supply.
RLB Tender Price Index uplifts published in CMI Q4 2024 vs published in CMI Q1 2025
The chart above shows an average of RLB's regional tender price forecasts for the respective years, weighted by regional new orders volumes of workload for the year to December 2024 (ONS).
