IN Brief:
- BCIS expects building costs to rise 14% and tender prices 15% by 1Q2031, while total new work output grows 12%.
- Contractor appetite to tender improved in 1Q2026, but financing constraints, tougher contract negotiations, and gateway delays continue to slow delivery.
- Labour remains the main cost driver, with specialist shortages in sprinkler installation and façade works still affecting project risk.
BCIS forecasts building costs will rise 14% over the five years to 1Q2031, while tender prices are expected to increase 15% and total new work output is projected to grow 12%. The outlook points to a market with a fuller pipeline than a year ago, but one still constrained by financing, contract risk, and energy-led cost pressure.
The near-term picture is already visible in the BCIS All-in Tender Price Index, which rose 0.7% between 4Q2025 and 1Q2026 for annual growth of 2.8%. BCIS said contractors are generally more willing to tender than they were a year earlier, although selectivity remains where programmes are tight, margins are thin, or Building Safety Regulator gateway delays introduce uncertainty before work can start on site.
Dr David Crosthwaite, chief economist at BCIS, said: “Conditions in the UK construction sector at the start of 2026 were mixed, with some signs of improving sentiment before geopolitical developments unsettled energy markets and clouded the outlook.” He added that higher energy prices could sustain inflationary pressure and delay monetary easing, leaving interest-sensitive sectors such as housing exposed to weaker financing conditions for longer.
BCIS also points to labour as the main driver of project cost growth. Skills shortages continue to affect specialist packages, including sprinkler installation and façade works, even where wider labour availability is considered adequate. The organisation said a stronger project pipeline in early 2026 has not yet translated cleanly into site activity, with restricted finance and firmer positions on contractual conditions still slowing progress.
Total new work output increased 1.8% in 2025, but BCIS expects growth through 2026 to remain subdued as residential and commercial sectors continue to face pressure. Further detail on the forecast is available from BCIS.
