2026 Construction Industry Predictions

With infrastructure spending on the rise and predicted lower borrowing costs, there is hope for increasing productivity in the construction industry. So, as the UK moves into 2026, the consensus is to be cautiously optimistic.

However, after years of economic instability and a current 12-month unbroken streak of contraction in the industry, the longest since the Global Financial Crisis, the sector is still experiencing a wide range of challenges.

Some areas of the industry are faring better than others, particularly in projects connected to the energy transition and data centres. These sectors are helping to underpin positive growth expectations for 2026.

How did the construction market perform in 2025?

Challenging business conditions, low client confidence and fears around the Autumn Budget caused falling workloads and delayed projects in 2025.

By mid-2025, the construction industry experienced a contraction in activity, with output falling by 0.3% in the 3 months leading up to October 2025. Across the sector, there were challenges, including:

– Housebuilding subindex dropping to its lowest (33.5) since the first national lockdown in 2020, meaning that fewer houses are being built despite the Labour Government’s 5mn new home target.

– Commercial construction output fell in December at the fastest rate in over 5 years

Whilst civil engineering experienced a reduction in the severity of its downturn in 2025, the sector was still seeing large losses. Overall, 2025 was a disappointing year for construction, marked by ongoing challenges.

What is the 2026 construction market forecast?

Despite challenges in 2025, outcomes are expected to improve gradually in 2026. Latest studies show that 37% of construction companies forecast a rise in output levels for 2026, compared to 20% that believe there will be a continuation in the decline.

Other official forecasts, such as from the Construction Products Association (CPA), expect output to rise by 2.8% in 2026. Whilst this is reduced from the previously predicted increase of 3.7%, the industry is still expected to experience growth this year.

Consistent interest rate cuts by the Bank of England in 2025, alongside expected further cuts to interest rates in 2026, should support an increase in output in the construction industry due to lower borrowing costs.

Demand for infrastructure within energy and technology will drive demand in 2026, however, challenges with skills shortages, talent pipelines and rising labour costs will likely dampen this growth.

What will be the main drivers of growth in the 2026 construction industry?

Energy, utilities and Net Zero

Energy and utilities infrastructure will be one of the biggest drivers for growth in the construction industry in 2026.

Major energy projects are currently in the pipeline, including large offshore wind farm sites, as well as nuclear sites such as Hinkley Point C and Sizewell C. Due to the 2030 Clean Power and 2050 Net Zero targets, many renewable energy sites will be funded and commissioned in 2026. This includes investment in the “The Great Grid Upgrade” which is aiming to update infrastructure to support these new renewable and nuclear sites and connect them to the grid.

Technology

With demand for data continuing to rise and the UK positioning itself as a global technology leader, there are several major data centres and gigafactories scheduled for construction in 2026.

In fact, PWC has reported that data centres and gigafactories will be the main contributors to commercial construction with 4.5% growth predicted in the period 2025-7. As of October 2025, the UK Government announced that data centres, large labs and gigafactories can apply for planning permission under the Nationally Significant Infrastructure Projects (NSIP) process, which allows them special powers to speed up planning permissions.

This relaxation in planning rules will help to increase funding and investment into further data sites and gigafactories in 2026 and beyond.

What challenges will the construction industry face in 2026?

Labour cost inflation and skills shortages will be among the most significant challenges facing the construction industry in 2026.

Labour costs will remain an issue for the industry in 2026, with the BCIS Labour Cost Index forecast to rise by 18% by 2030. This is due to increases in minimum wage, high employer National Insurance rates, and the cost of significant skills shortages. This will likely have a knock-on effect for parts of the industry, such as project delays and low activity.

Additionally, talent pools are shrinking, particularly across several key areas such as electricians and plumbers. The sector is experiencing significant shortages on the whole, with an estimated 220,000 to 250,000 additional workers needed by 2027 just to meet demand.

Despite this, there is a lack of long-term government investment in apprenticeships to address this gap. Statistics show that apprenticeship entrants are declining by an average of 4.3% year-on-year. Without newcomers to the industry, there are concerns for the industry’s talent pipeline and its ability to meet demand.

Looking to secure your construction talent pipeline for 2026?

MoveATech are a specialist recruitment agency, facilitating the hiring of construction professionals for major projects across the UK and globe. If you would like to talk to our team more to find out how we can support you, click here.