Chris Sargent, managing director for UK real estate at Turner & Townsend, examines the challenges and opportunities facing construction in delivering the government’s growth agenda
In its first year at the helm, the new UK government has worked to keep its sights focused on growth – from support for the Modern Industrial Strategy’s eight growth-driving sectors, or IS-8, to reforming the planning process to “get Britain building”.
There has been a clear acknowledgement of our sector’s role in enabling this growth but identifying construction as a foundational sector is only the first rung on the ladder to actual delivery.
With a second consecutive monthly UK GDP contraction, by 0.1% in May according to ONS, we have our work cut out. The responsibility to play our part in reversing this trend and delivering growth falls on construction at a point when our supply chains are still struggling with the impact of several years of increased insolvencies, high interest rates, constrained margins and an acute skills shortage.
To meet the government’s ambitions to build more homes, upgrade our schools and hospitals, reindustrialise Britain and secure our defences, significant work is needed, from both public and private sectors, to rebuild our sector’s capacity. Success will rely on government and industry working more closely to invest in skills and greater productivity.
Crucially, this needs to happen at pace. The Modern Industrial Strategy and wider sector plans have taken considerable time to be published and every week that goes by as we wait for this joined-up approach to emerge is a week lost in terms of fully supporting the IS-8 in driving economic growth.
Grappling with the cost challenge
As inflation has eased over the past year, cost escalation in our sector has followed a similar trajectory. Our own recent Global Construction Market Intelligence 2025 report showed that construction cost inflation in Manchester has fallen from 10% in 2022 to 3.5% in 2024.
However, the government’s renewed growth drive is likely to put the brakes on this downward trend and place fresh pressures on prices.
In Bristol, for example, where defence and healthcare are among the top performing real estate sectors, our research suggests construction cost inflation will nudge up from 3% in 2024 to 5% in 2025, as the market navigates competition for skills and materials. The average cost to build in the city now sits at £2,588 per sq m (US$3,348), putting it on a par with Germany’s capital Berlin (£2,579 or US$3,336 per sq m).
In the capital, stretched resource is contributing to particularly high prices, with London ranked in our data as the fifth most expensive city to build in globally at £4,163 (US$5,385) per sq m.
Addressing this competition for resource will in part come down to greater visibility and certainty of pipelines of work to provide the confidence for businesses to invest in developing the capacity and capabilities we urgently need.
As the construction sector’s largest client, the government has a major role to play in providing this clarity and consistency. The Modern Industrial Strategy and Infrastructure Strategy are positive steps towards this but we are still waiting to see details, including on timelines and funding models, on the major construction programmes coming down the track.
Building the skills
For our part in the private sector, we must grasp the opportunity that this fresh clarity of direction has presented – to funnel investment into bridging the capacity and skills gap. The government’s additional funding to train more people in traditional construction skills will help here, but it won’t solve our productivity problem.
We have to ensure we’re attracting new and different skillsets too. Getting more digital talent in, for example, will be crucial to modernising our work and driving productivity gains, in turn, reinforcing confidence in the sector for investors and potential workers alike.
At the same time, we should also be capitalising on the potential for new technology and approaches like Modern Methods of Construction (MMC) to make the capacity we have go further.
With the public sector’s drive to do more for less and maximise a squeezed budget, there’s a chance for schemes like the New Hospitals Programme – the strategy for which is underpinned by MMC – to accelerate the pace of the modernisation of our industry more broadly.
To drive the government’s ambitions for economic renewal, our sector will need to maintain a mindset focused on the opportunities brought by high demand. This isn’t about ignoring the challenges we face, far from it. It’s a case of identifying where the private sector, working hand-in-hand with government, can use this renewed investment as a catalyst to overcome the issues which have long hampered construction. With a tall order to deliver, we need to do it fast.
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