MACRO ECONOMIC CONDITIONS
Key data
GDP forecasts for 2025:
+1.00%
(OBR)
+1.40%
(OECD)
+1.10%
(IMF)
CPI forecasts for 2025:
+3.20%
(OBR)
+2.70%
(OECD)
+3.10%
(IMF)
Unemployment forecasts for 2025:
4.50%
(OBR)
4.70%
(OECD)
4.50%
(IMF)
Slow growth and sticky inflation continue to temper outlook
Forecasts of GDP for 2025 continue to depict lacklustre growth, at a consensus of somewhere between 1.0 and 1.4%. Ordinarily that would stimulate the Bank of England to significantly lower the Base Rate for lending, but the bugbear of inflation is still stubbornly almost 1% above the 2% target. The compromise of the early May quarter per cent cut to 4.25% treads the line between aiming to stimulate the economy, set against the need to not further stimulate inflation. The Monetary Policy Committee’s split in voting amply demonstrates the problem – with support for hold, cut and cut deeper.
Interestingly, in all the talk of general inflation falling toward target, OBR’s Wages and Salaries 2025 forecast shows a projected uplift of 5.2%, a figure which outstrips its 3.2% CPI forecast and its 4.1% RPI forecast. Hence, perhaps, the divisions in the Monetary Policy Committee. While we remain in positive territory as far as GDP is concerned, no-one wants to hear talk of stagflation, but nonetheless, that is a possibility.
Examination of ONS statistics on construction carried out in the UK up until the end of Q1 2025 shows ongoing high levels of repair and maintenance works delivering an unusually high proportion of overall work carried out. Statistics on new orders into the construction industry show overall somewhat of a revival of private commercial work, but continued negative figures for the housing sector. Reductions in interest rates may help to stimulate housing build, alongside revisions to planning policy, but the recovery could take some time.
In a currently tight labour market with overall low levels of unemployment and ongoing shortages of skilled and unskilled labour, new workload distribution and local availability of labour could hold the key to whether any influx of project work could result in tender price breakout. Also, while we can all advocate for public-private partnerships (PPPs), the fact is that PPP solutions are time-hungry, in that they can take years to get to the build stage, so what presents as an easy economic solution may not be all that straightforward.
Key economic forecasts
CONSTRUCTION PIPELINE PROSPECTS
Key data
New construction work done volume:
-3.34%
full year to March 2025 (ONS)
Repairs and maintenance work done volume:
+6.29%
full year to March 2025 (ONS)
Work done volume:
+0.72%
full year to March 2025 (ONS)
New orders volume:
+7.10%
full year to March 2025 (ONS)
New orders up overall despite falls in both private and public housing
The ONS first quarter statistics for 2025, while mixed, show some bright areas, namely, work carried out and new orders into the industry. Overall, work volume carried out in the last year is up slightly, but that positive statistic is tempered by the fact that its strength comes from repair and maintenance work rather than new work as such. Other than public new housing, which is down over 12% for the full year, the main concerns are new infrastructure, down almost 8%, and new commercial, down almost 6%.
Similar analysis of new orders confirms concerns about the falling away of housing in both the private and public sectors, down almost 18% and almost 14% respectively. Overall, however, new orders are reported up by over 7% and within that, private commercial work is up by over 9%.
Taken as a whole, this quarter’s annual round-up figures can be said to be cautiously positive, showing some revival in commercial work in particular, although the housing sector’s output and new orders appear to be still struggling.
Given all of this, the importance of the outcomes from the government’s upcoming Spending Review could be key to at least the public sector figures coming up, and in terms of giving developers confidence to invest in the private sector.
INPUT COSTS
Key data
Input costs forecast for 2025:
+4.15%
full year 2025 (BCIS)
Input costs forecast for 2026:
+2.79%
full year 2026 (BCIS)
Margins remain under pressure as input costs outrun tender prices
BCIS’s General Building Cost Index now shows uplift of 4.15% for 2025, significantly outstripping its tender price uplift of only 2.43% and RLB’s weighted average for the year of 3.22%.
The significance of this varies from locale to locale, and obviously from project to project, but the big picture is that margins will continue to be under pressure this year as sharp increases in costs outrun increases in selling price of construction in a competitive marketplace.
Looking at the ONS statistics for new orders further reveals that, although year-on-year the figures are mildly positive, of more concern is the period of the last six months of seasonally adjusted volume figures, which suggest a considerable overall reduction in levels of new work coming through.
Again, effects will vary regionally and in terms of building type, but any diminution of workload availability affects tender pricing, which appears to be already under pressure from input price escalation.
TENDER PRICE FORECAST
Key data
RLB Weighted Average TPI 2025:
+3.22%
full year 2025 (RLB)
BCIS Tender Price Index 2025:
+2.43%
full year 2025 (BCIS)
Forecasts reflect difference in perspective between national and local markets
This quarter’s RLB tender price forecast, weighted by ONS regional new orders volume, shows an almost identical overall outlook for this year compared to our forecast in the previous quarter. Looking further forward, we are seeing only a very slight softening in the 2026-28 figures, with the new 2029 uplift obviously freshly entered into the model.
Most strikingly, BCIS figures have been revised downward for 2025-28, now showing approximately three quarters of one per cent less than RLB’s equivalent figures over each year in the timeframe. As time rolls on, of course, adjustments will be made as further information comes to light in respect of actuals as opposed to forecasts. However, RLB’s regional tender pricing provides a sharper local interpretation of events on the ground in each locality.
Differentials in ongoing workload and upcoming opportunities are key to the development of local markets. Answers to questions as to availability of public funding, together with development of more appreciable growth in GDP, would provide a firmer basis for companies’ investments in construction, but it is fair to say that uncertainty is at an elevated level for now and is not helping the industry.
RLB Tender Price Index uplifts published in CMI Q1 2025 vs published in CMI Q2 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 March 2025 (ONS).
