Both general and construction cost inflation are expected to grow in the coming months, says the Construction Products Association (CPA)
According to the CPA Summer forecast 2026, confidence is expected to suffer, as well as spending, investment, and project viability; however, infrastructure is expected to still grow in spite of this.
Other forecasts are more optimistic, highlighting the uncertainty surrounding the industry’s outlook.
Middle East conflict adds pressure to construction outlook
In total, it is expected that construction will fall by 3.3% by the end of 2026, with private housing and private housing repair, maintenance and improvement (rm&i), some of the largest sectors in the construction industry, taking the biggest hits.
This further downgrade in expectations is primarily due to the conflict in the Middle East, as the impacts are now being felt in force in both demand and costs. Construction output year-to-date has already fallen by 1.6%, according to the Office for National Statistics (ONS), before applying the aforementioned impacts.
Infrastructure is still expected to grow with longer-term existing contracts, pipelines of activity, and funding for future projects. Energy generation and National Grid works are expected to continue growing, as well as water investment.
Infrastructure output is forecast to rise by 3.2% in 2026 and by 3.2% in 2027, a marginal revision down from 3.4% in Spring.
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Commenting on the Spring Forecasts, 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.
“The biggest questions are how rises in construction costs, financing costs and the cost of living will affect the privately-financed sectors of private housing, private housing rm&i and commercial.
“Consequently, these sectors are forecast to experience the largest falls in output over the next 12-18 months. Even in areas where we forecast growth, there is an increased risk that rising cost inflation eats into the volume of construction work, even if the values of work are maintained.
“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.
More information about the forecast can be found here.
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