The Construction Products Association (CPA) has further downgraded its Summer construction forecast, citing the delayed economic impact of the Middle East conflict, which is increasing costs and weakening demand across the UK construction sector.
According to the Office for National Statistics (ONS), UK construction output has already declined by 1.6% during the year to date in 2026, with the CPA now forecasting an overall annual contraction of 3.3%.
The weaker outlook is largely driven by a significant slowdown expected in private housing construction and private housing repair, maintenance and improvement (RMI) activity during the second half of the year. While construction output is still projected to grow by 1.2% in 2027, the CPA warned that downside risks remain substantial.
The association also expects construction material prices to rise sharply later this year, adding further pressure to developers already facing higher regulatory costs. These include the introduction of the Building Safety Levy in October 2026 and the implementation of the Future Homes and Buildings Standard from March 2027.
As a result, private housing output is now forecast to decline by 10.0% in 2026, a steeper fall than the 7.0% contraction predicted in the CPA’s Spring forecast. Output is expected to remain broadly unchanged in 2027, although from a significantly lower starting point.
Despite the challenges facing the housing market, the infrastructure sector is expected to remain resilient, supported by long-term contracts, established project pipelines and committed government and private-sector investment.
Strong growth is expected to continue across energy generation, National Grid electricity distribution projects and major water infrastructure investment programmes, helping to sustain activity within the wider construction industry.
Overall, the CPA forecasts infrastructure output will increase by 3.2% in 2026, unchanged from its Spring outlook, while growth in 2027 is projected at 3.2%, slightly lower than the previous forecast of 3.4%.
CPA Head of Construction Research, Rebecca Larkin, said: “Construction activity so far this year is already lower than a year earlier and there is still considerable concern that we are yet to see the key impacts of cost inflation on projects down on the ground or the extent to which it affects appetite for signing up to or starting new projects.
“In addition, this rise in construction costs runs alongside the government’s imposition of 50% import tariffs for imported steel since 1 July 2026 and the prospect of even higher financing costs if the Bank of England raises interest rates, which make worsening viability a key barrier for new projects to progress.
“The arrival of the new Prime Minister emphasises that the new government will have to focus on enabling house building and construction demand, as well as focus on reducing cost burdens on the whole construction supply chain if it is serious about pledges for more new homes, more and better quality infrastructure and the Net Zero transition.
“This is a pressing issue as essential capacity and skills have been lost in the last two years and this will only get worse as activity falls over the next 12-18 months.”
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