The UK Construction Sector in 2025: A Shaky Start

The UK Construction Sector in 2025: A Shaky Start 

The UK construction sector began 2025 on uncertain footing, grappling with ongoing economic pressures, rising costs, and a persistent shortage of skilled labour. While the start of the year was far from smooth, there are signs of renewed optimism on the horizon. Despite a challenging first quarter, many within the industry are cautiously hopeful for a stronger second half, with various indicators pointing to potential recovery. This construction forecast offers an overview of how the sector has fared so far, the key hurdles it continues to face, and where future growth may come from.

A Slow First Quarter and Ongoing Industry Pressures

Activity slowed in January, with the S&P Global/CIPS UK Construction PMI falling to 48.1 – below the threshold that indicates growth. It marked the first contraction in nearly a year and reflected a mix of client uncertainty, elevated borrowing costs, and delayed project starts. Data from the Office for National Statistics also showed a 0.2% decline in construction output for January, following a similar drop in December 2024. New work was particularly hard-hit, down 0.7%, although repair and maintenance showed modest gains. Adverse weather – including heavy storms and prolonged rainfall – was cited as a key reason for delays on site.

Labour shortages remain a serious concern for the industry. According to the Construction Products Association, as many as half a million construction workers are expected to retire over the next 10 to 15 years – around a quarter of the current workforce. Although government-led skills initiatives and apprenticeships are in place, the pace of recruitment and training continues to lag behind what’s needed.

Cost pressures are another ongoing issue. Inflation, coupled with high energy bills and rising wages, has driven up the cost of materials and labour. This has squeezed margins across the board and introduced more volatility in tender pricing, with many suppliers still passing increased costs on to clients.

Confidence among clients also remains shaky. The tapering off of government schemes like Help to Buy, alongside elevated interest rates, has cooled housing demand. Commercial and industrial clients are similarly cautious, with many deferring or scaling back investment decisions.

Forecast for Growth in the Second Half of the Year

Despite all of this, the construction forecast for later in 2025 is notably more upbeat. Private housing is expected to bounce back, with the CPA forecasting 6% growth in output for the year. Improving consumer confidence and the potential for lower interest rates are likely to support demand. The market for repair, maintenance and improvement is also set to benefit, particularly as homeowners continue to invest in energy-efficient upgrades, encouraged by schemes such as ECO4, GBIS, and the Boiler Upgrade Scheme.

Infrastructure is another bright spot, with Barbour ABI reporting increased approvals for clean energy, transport and utility projects. The £170 million Immingham Green Energy Terminal is a prime example of the kind of investment backing the government’s broader net-zero ambitions. Industrial and logistics developments are also expected to grow, driven by demand from discount supermarkets like Aldi and Lidl, as well as the continued expansion of e-commerce and warehousing.

On the public side, the new Labour government’s pledge to build 1.5 million homes over five years is likely to boost activity in affordable housing, schools and hospitals. Increased capital funding should help drive growth in these areas through the rest of the year. In the commercial space, the evolution of hybrid working is shaping a new demand for flexible and sustainable offices. Retrofit activity is expected to increase, particularly in city centres, as ESG standards become more influential in design and planning.

Looking ahead, Glenigan projects an 8% rise in overall construction output in 2025. The CPA sees a steady rebound in housing and infrastructure, though it warns that input costs and labour shortages will remain key risks. Barbour ABI has reported a growing pipeline of projects in renewables, infrastructure and industrial sectors, which bodes well for the industry’s recovery.

Although the year began on a difficult note, the construction forecast for the remainder of 2025 is far more positive. With government investment, policy support, and a growing shift towards sustainability and infrastructure development, the second half of the year offers a more promising outlook. That said, firms will need to remain agile, manage supply chain challenges effectively, and continue to invest in people and skills in order to take full advantage of the opportunities that lie ahead.

If your business is looking to navigate these challenges or position itself for growth, get in touch with to see how we can help you move forward with confidence.