Overall activity in the UK construction sector remains mixed, reflecting wider economic headwinds. GDP grew modestly in Q1 2025 (+0.7% quarter-on-quarter), with construction output up only +0.3%. Inflation is still elevated (CPIH ~4.1% in June), and borrowing costs remain high, but there are tentative signs of stabilisation. Employment in the economy is strong (75.2% employment rate, 16–64 in Mar–May), and wage growth (around +5% in early 2025) is beginning to filter through. In this context, analysts note cautious optimism: workloads have largely levelled out and some sectors (notably housing) are showing early recovery signals, even as commercial and civil engineering segments remain under pressure.
 
Economic backdrop: In Q1 2025 UK GDP increased +0.7% (same as first estimate), driven by services and modest gains in production; construction contributed a +0.3% rise in output. Inflation (CPIH) ticked up slightly to 4.1% in June 2025, well above the Bank of England’s 2% target. The labour market is tight – unemployment was 4.7% (Mar–May 2025) and earnings are rising. 

 

These factors together mean higher costs of materials, labour and finance, constraining margins. Many firms still cite labour and materials prices as leading cost pressures, although overall price inflation in construction inputs has moderated from 2022 peaks.

 

Recent output: Official data show construction output dipping slightly in early 2025. For example, monthly output fell by 0.6% in May 2025 (after a +0.9% rise in April), largely due to weaker repair and maintenance work. On a three-month basis to May, total output was up +1.2%, split between +0.9% new work and +1.5% R&M. 

 

However, survey-based data suggests a cautious picture: the construction sector was still contracting marginally in June (index 48.8, up from 47.9 in May). Notably, residential building was the only expanding category (index 50.7, first growth since Sept 2024), whereas commercial (+45.1) and civil engineering (+44.2) remained in deep contraction.

 

Sectoral trends: Residential housing is showing the strongest momentum. Private homebuilding has gradually improved, supported by government housing programs and relatively strong buyer demand. Housing investment is expected to be a key driver of future growth, and developers report a modest increase in starts and sales. Infrastructure and utilities remain a bright spot. Energy and transport projects continue to underpin demand, with long-term government settlements for health, education, transport and water infrastructure contributing to a steady project pipeline. By contrast, commercial construction (offices, retail, leisure) is still weak: firms cite subdued demand and delayed projects in this area. Industrial construction (factories, data centres) is holding up better, with ongoing investment in data-storage and renewable-energy facilities.

 

Workforce and skills:A tight labour market is a recurring theme. The UK construction workforce is projected to grow to about 2.75 million by 2029, requiring roughly 239,000 new recruits over five years. In the near term, many firms report shortages of skilled trades. Around 9% of UK businesses (17% of larger firms) reported worker shortages in July 2025. New funding for apprenticeships and training hubs is aiming to plug the gap – but filling tens of thousands of vacancies remains a challenge.

 

Costs and prices: Despite easing from 2022, input cost inflation is still significant. Materials cost indices are expected to rise (forecast +13% over the next few years), driven by items like cement, steel and timber. Labour costs are also rising; about 15% of mid-sized firms said they intend to raise their prices in late 2025, chiefly due to higher wage bills (40% cited labour costs as the reason). 

 

Broader inflation and energy prices feed through to construction budgets. Survey data shows many builders are still trying to absorb cost increases, with mixed pass-through to clients. Overall profit margins are under pressure.

 

Outlook: Most forecasters expect a gradual recovery, though timing varies. Official workforce outlooks project moderate growth: about +1.6% output in 2025 and roughly +2.1% per year through 2029. Some forecasts show total construction output growing ~+3.5% in 2025 (after a ~–1% dip in 2024) and around +4–5% in 2026. 

 

These gains are expected to be fuelled by housing (especially post-2025) and continued infrastructure work. Key indicators already suggest sentiment is improving: forward-looking balances for workloads remain positive, and recent upticks in activity are the strongest since early 2024.

 

In summary, the UK construction sector in mid-2025 is experiencing a trough in activity offset by signs of resilience. After a tough year, output is roughly flat and market conditions are stabilising. Housing and infrastructure projects are now the driving forces, while commercial work lags. Labour and cost pressures persist, but with persistent client demand for new homes and infrastructure, many industry observers anticipate improved growth ahead. 

 

The next year or two will likely see a gradual upturn – developers and contractors remain watchful but hopeful, preparing to scale up as economic conditions firm and major projects come onstream.