The UK construction sector enters the final quarter of 2025 facing a paradox
The Gleeds 2025 Market Report shows that there are tentative signs of stabilisation after a volatile year marked by falling order books, cost inflation, and persistent insolvencies. Structural pressures, including fragile supply chains and regulatory bottlenecks, continue to weigh heavily on confidence.
There is cautious optimism in key sectors, but a short-term escape from the headwinds caused by the pandemic and energy crisis remains elusive.
Market outlook: A fragile but stabilising picture
After a strong Q1, the sector faltered in Q2 with sharp declines in infrastructure, industrial and commercial work.
August saw a partial rebound, bolstered by major projects such as the £670m Cambridge Children’s Hospital and a wave of commercial schemes in London and the South East.
Construction output grew by 0.2% in July, largely driven by housing repair and infrastructure. Over half of survey respondents are pessimistic about industry prospects under the current government, citing slow pipelines, regulatory delays, and weak consumer sentiment.
Inflation and tendering pressures
Inflation reached 3.8% in July and is forecast to peak at 4% before easing in 2026. Tender price inflation is projected to average 3.5% in 2025, moderating to 3.25% in 2026, before climbing again to 3.75% in 2027.
Contractors remain risk-averse, with 57% of respondents noting reduced appetite for risk in Q3, particularly where financing or regulatory hurdles extend pre-contract periods well beyond 18 months. Although margins have increased from 5.7% to 6.3%, much of this reflects attempts to pass on rising National Insurance and wage costs to clients.
Tendering patterns remain challenging. Three-quarters of contractors (75%) declined at least one tender in the third quarter, and insolvency remains a live threat, as construction still accounted for 16.3% of all UK insolvencies in Q2, with specialised services firms being the hardest hit.
Where sector opportunities lie
The Gleeds Q3 2025 Market Report identifies several bright spots across key sectors:
Healthcare
A standout performer in Q3, the government’s Spending Review 2025 and the NHS 10-Year Plan reaffirmed commitments to deliver 25 new hospitals, £30bn of maintenance and RAAC remediation, and £10bn for digital transformation.
Delivery challenges remain, with flat capital budgets constraining Trusts outside the New Hospital Programme. Nevertheless, Gleeds highlights strong demand for refurbishment, adaptability, and digitally enabled community hubs, with the Hospitals Transformation Programme in Shrewsbury a flagship example of this shift.
Infrastructure
The sector is buoyed by the government’s £530bn, 10-year Infrastructure Strategy, which covers 780 projects across transport, water, energy, digital, and defence. Highways, rail and utilities are all set for significant investment.
Key commitments include £24bn for National Highways, £3.9bn for the Transpennine Route Upgrade, and early works on East–West Rail and Manchester–Liverpool rail connectivity.
Water companies, meanwhile, are preparing to deliver the £96bn AMP8 investment cycle, although regulatory uncertainty around Ofwat threatens to undermine momentum.
Delivery risks remain an issue, with an ageing workforce, fragile material supply chains, and stricter environmental standards all risking slowing progress.
Education
Education remains one of the most active tendering markets, supported by the £15.4bn Construction Framework 2025. The School Rebuilding Programme (£2.4bn annually) and nursery expansion are central to the government’s capital policy. Yet inflation, supply chain capacity, and local authority resourcing could undermine delivery.
Residential
Residential remains the sector under the greatest strain. Contract awards fell 35% in August to just £1.1bn, the lowest level since before 2024. Rising costs, planning and compliance burdens, and stagnating property values have created what respondents describe as a “serious slowdown”.
The New Towns Taskforce and RTPI’s Futureproof New Towns report call for mixed-tenure, place-led communities to restore trust. However, without significant reform, delivering 300,000 homes a year remains unlikely.
Outlook
The Q3 2025 Gleeds report concludes that while the sector remains under strain from inflation, insolvencies, and labour challenges, opportunities exist in public housing, healthcare, education, infrastructure and offices.
The critical factor will be converting government commitments into tangible project delivery. This will require clear financing and urgent action to streamline regulatory processes, invest in skills, and safeguard supply chain resilience.
For senior construction leaders, the message is one of cautious realism. The sector is no longer in crisis, but it is still not out of the woods. Stabilisation is emerging in healthcare, infrastructure and education, but the broader market remains fragile.
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