Jon Hart, partner at infrastructure law firm, Pinsent Masons LLP, provides some prognostications for UK construction in 2026, and what is to come
At the start of a new year, there is often a tendency to follow the approach of the apocryphal farmer who announces that things were bad in the year gone by, but nowhere near as awful as they will be in the year to come.
However, early analysis of end-of-year data for 2025 and projections for 2026 suggest there are grounds for tentative optimism and that better days may lie ahead for UK construction – but this also needs to be seen in the context of major legal and regulatory changes affecting the sector.
This time last year, there was widespread concern that the sector was about to (re)enter a recession; by contrast, headline figures for 2025 suggest a modest increase of 0.9% for the year, with some encouraging news for the final quarter in some areas: for example, start on site activity rose by 7% in the three months to December.
It remains to be seen how much December’s interest rate cut by the Bank of England will help further stimulate growth – some commentators are predicting 2026 output to be anywhere between 3.5% and 4.5% when compared with 2025.
This growth is likely to be patchy. Not all construction businesses will see the upside, and (unsurprisingly) there will likely be regional variation. While politicians sometimes overestimate their role in driving economic change, 2026 is likely to show just how much legal, regulatory, and policy decisions will impact how markets develop.
Residential and commercial
Activity in both the residential and commercial markets illustrate this. For example, despite government announcements in 2025, there appears to be a disconnect between planned targets and the actual delivery of residential housing. Government ambition remains at delivering a target of 1.5m homes by 2030 (an annual target of 300,000 deliveries). For social housing, the anticipated launch of the Social and Affordable Housing Programme, slated for February, may be an important potential step-change.
Announcements from last year suggested that a notional £39bn of funding has been allocated to the programme, but the funding commitment will also require a significant gear change in actual activity if the shortfall against targets is to be addressed.
There may need to be some structural changes within the market, too. Under the government’s programme, there is an objective that 60% of houses delivered should be for social rent, with new sustainability commitments and achievement of the consolidated Decent Homes Standard.
End-of-year data indicates that social housing already appears to be showing signs of growth (with a 16% increase over the course of the year, and 28% in the last quarter) – admittedly from low levels – but in a market contrast to private residential developments, which continue to linger in the doldrums (down by 20% against 2024 figures), these private residential figures stand in marked contrast to non-residential activity, particularly office and industrial projects.
Developers and contractors may face challenges in deciding where best to allocate resources and energy in pursuing new work, and in testing which tender opportunities are genuinely capable of delivery within a realistic timescale.
2025 saw considerable activity in relation to data centre and logistics hub developments. This is likely to continue into 2026, with market expansion seeking to keep pace with the growing appetite for AI-driven applications among businesses and private users, as well as with consumer appetites online.
Perhaps understandably, there has been increased market standardisation in technical and contractual solutions for both procurers and contractors, but these projects continue to be resource-intensive, both in contracting terms and in terms of enabling infrastructure. For businesses not already active in ongoing projects, this may prove a challenging market to break into.
Defence
The defence sector is likely to be a major growth area for construction in 2026. The government published its Strategic Defence Review last June with a headline commitment to spending 5% of GDP on national security by 2035, with an increase of 3.6% of the MoD’s budget in the period through to 2029.
While some of this expenditure is committed to materiel and manpower, a considerable proportion is also due to be allocated to the built environment and military estates, through the Defence Infrastructure Organisation, including the implementation of the Defence Housing Strategy and associated specialist accommodation overhaul, as well as investments by industrial partners.
Energy
The infrastructure pipeline published by the National Infrastructure and Service Transformation Authority in July also provides some indication of other potential areas of activity.
Considering the pipeline alongside the ambitions of the national ten-year infrastructure strategy, it is clear that energy and infrastructure will be major drivers of construction in 2026. Current questions regarding the energy transition and energy security are unlikely to diminish, and greater certainty around pricing and regulatory price controls will drive new investments and continued activity on existing programmes of work, including Hinkley Point and Sizewell, as well as the development of major offshore wind schemes.
2026 should also see the continued development of battery storage schemes and a further step forward in respect of the design and development of small modular reactors. Set against this is the challenge of grid connectivity and the delivery of initiatives included in the Great Grid Upgrade, but the NISTA pipeline identifies that “investable” energy projects amount to £80BN in value over the next 8 years.
Water
In a similar vein, there is significant potential for further growth in the water sector. There are several major capital schemes already in the process of delivery – notably HARP in the Northwest and run-off works from Thames Tideway. The rollout of the next control period for water utilities, AMP 8, commenced in April 2025 and is due to run through to 2030, with over £50BN of investment in capital works during this period.
Again, in terms of market growth for businesses, being actively engaged on existing frameworks and supply chains is going to be crucial and may also be an important determining factor for success in relation to a major potential new development for 2026 with the procurement of new schemes (including perhaps the consolidation of the private-financed Direct Procurement for Consumers (“DPC”) model).
Transport
2026 will also be an important year for transport schemes. Some of the largest projects currently underway in the UK are entering critical stages of delivery. Recently, HS2 has disappeared from the political headlines and has been relatively low-key in public announcements, but there are major milestones to come in the next 12 months across the various contract packages, including civil engineering works, track systems, and stations.
2026 may also be a landmark year for the future developments at and around Euston. Next year may also see the Treasury settle on a deliverable, privately financed solution for the Lower Thames Crossing, while work on the project is already underway.
Highways England will commence delivery of the Road Investment Strategy 3, to run from 2026 to 2031, for which some £24bn has been allocated by the most recent government Spending Review, while Network Rail will be heading into the second year of Control Period 7, for which £45bn of expenditure has been allocated.
With parallels to considerations affecting the water sector in relation to DPC, of note is the work undertaken by the Office of Road and Rail in October 2025 to review the Rail Network Investment Framework. Ambitions include unlocking private investment in rail infrastructure – something of a recurring theme since the earliest days of rail privatisation. 2026 may provide early indicators of how this ambition will sit alongside the rail sector shake-up envisaged by the current Railways Bill.
Asset Maintenance
A major driver of growth will be the maintenance and renewal of existing assets. A key plank in the 10 Year Infrastructure Strategy has been the development of a comprehensive approach to infrastructure. This has long been a feature of investment planning for road and rail, but with the advent of NISTA and broader consideration of the country’s social infrastructure, there may be a greater focus on long-term maintenance planning for hospitals, prisons, courts, and education facilities. Stakeholders may expect to see greater emphasis on scaling up programmes of work and the use of existing and newly procured frameworks and term service contracts.
Planning, employment, H&S, competition, and procurement reforms
The impact of the planning reforms widely discussed in 2025 is likely to be felt in the coming year. Hopefully, this will influence new projects.
Proposals to streamline judicial reviews for Nationally Significant Infrastructure Projects have been welcomed by industry, given their potential to reduce delays and costs in resolving legal challenges. The changes, prompted by Lord Banner KC’s broader work on tackling delays in the planning system, will be implemented through the Planning and Infrastructure Act, which received Royal Assent on 18 December. The practical implementation of the legislation will be important to accelerate the delivery of key projects across the country.
There are other legislative and regulatory issues to consider. 2026 will see the phased implementation of many provisions of the Employment Rights Act 2025. The legislation was one of the central pillars of the Labour government’s 2024 election manifesto and makes significant changes to laws governing pay, flexible working, and employee rights, including rights to sick pay and protection against unfair dismissal.
Other reforms will impact how employers manage industrial relations and address the gender pay gap. These are going to have a major impact on employee and HR issues across the industry
Health and safety matters will also remain under the spotlight. Employers, contractors and asset managers alike continue to grapple with the practical implications of the Building Safety Act – especially when it comes to securing consents and approvals. Latest developments – in relation to the approval of building products and the establishment of a Single Construction Regulator will hopefully continue to improve processes and standards.
Equally, both procurers and contractors alike may anticipate further focus upon competition law concerns. The UK Competition and Markets Authority was busy at the end of 2025, issuing new guidance and concluding investigations (including those relating to alleged information sharing affecting housing developments). Activities by the CMA and from the courts highlight that competition matters and interventions are likely to remain a key area of consideration in 2026.
Procurement reform reshaped the landscape in 2025. The Procurement Act 2023 and related regulations came into force in February 2025. The effects of this will continue to be felt in 2026, particularly with respect to a number of important areas, such as requiring contracting authorities to have regard to new procurement objectives, including value for money and maximising public benefit, as well as a requirement to have regard to government priorities such as net zero and social value through the National Procurement Policy Statement.
In relation to selection and evaluation, the Act reshapes the regime on exclusion grounds, introducing a new debarment list managed centrally by the UK government.
There is also a shift from identifying the ‘most economically advantageous tender’ to ‘most advantageous tender’ as part of the evaluation exercise.
From a transparency perspective, the act introduces various notice publication requirements throughout the life of the contract, including for procurement and contract management. There are also new implied contract terms regarding prompt payment and termination rights. The extent of these changes is likely to particularly influence dispute resolution strategies, as already evident within contract drafting on public construction projects.
Embodied carbon
Sustainability continued to be a defining theme in the market in 2025 and is likely to remain a major consideration in 2026, across regulatory compliance, contract drafting, risk management, and project delivery.
Sustainability is no longer a “nice to have” but will be central to tendering processes, requirements for contractual management of design and construction activities, rather than a “bolt-on” requirement. Demonstration of approaches to embodied carbon may also be central to specific planning decisions. Planning authorities are also prioritising retrofit over demolition to reduce construction-phase emissions, with changes to the National Planning Policy Framework (NPPF) in England.
Cases such as the Oxford Street Marks & Spencer redevelopment highlight how embodied carbon will be a decisive factor in approval decisions.
Outside of the UK, EU regulation is driving project finance documents and procurement contracts to include sustainability requirements, which are then passed down to suppliers in the whole value chain to demonstrate that human rights breaches and environmental risks are minimised, and to ensure that evidence of compliance is reported back up the contract chain.
Given the EU’s impact on businesses operating in the UK, this EU regulation is being felt in the UK, with evidence of this kind of reporting increasingly required in contracts.
Regulation is also evolving to integrate safety and decarbonisation. The Building Safety Act continues to impose stringent requirements on higher-risk buildings, but property owners now face dual compliance pressures: maintaining structural safety while meeting increasingly complex energy-efficiency standards.
Looking further ahead, government proposals for mandatory net-zero transition plans for “economically significant entities” will further embed sustainability into funders’ corporate strategies and reporting obligations.
A year of change for UK construction
From a legal and regulatory perspective, 2026 will be a year of change.
This is taking place at a time when inflationary pressures and material shortages will continue to affect project delivery, driving up costs and extending timelines. The BICS construction forecast predicts that building costs are likely to increase by 15% over the next five years, while tender prices are expected to increase by 16% over the same period.
We have seen these challenges lead to increased reliance on contractual mechanisms such as price adjustment clauses and force majeure provisions to manage risk.
Overall, there are many reasons for businesses to be more confident as they enter the new year – but there are obvious challenges to face. As volatility persists, contractors and employers will have to review their supply chains and dispute resolution strategies, ensuring that contract terms reflect continuing market realities and serve as a driver for embracing rather than ignoring change.
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