UK market view: Q1 2026

Economy faces another bout of uncertainty, but Middle Eastern conflict to push up tender prices 

Construction output had a very disappointing end to 2025, declining 2.6% and recording its worst quarter since the pandemic. While not negative overall, headline growth was negligible, driven by uncertainty brought about by international as well as domestic factors. The broader picture, however, remains mixed, with the volume of new orders rising noticeably in 2025 from levels over the previous two years. 

The Q1 edition of our market view explores these dynamics, highlighting the impact of the Middle East conflict, forecasts from the Treasury and final figures from 2025. Despite the significant causes for uncertainty, orders have increased, particularly with regards to infrastructure and major programmes, which gives cause for hope when it comes to long‑term growth. 

Geopolitical instability continues to weigh on the economic outlook as 2026 begins. Conflict in the Middle East has caused disruption to global energy markets, with oil and gas prices elevated, adding to inflationary pressures and pushing up costs across energy‑intensive construction materials and transport. These developments have led us to revise 2026 tender price forecasts upwards, reflecting renewed energy-driven cost pressures. 

For policymakers, the balance between inflation and growth has become more difficult. The likelihood of interest‑rate cuts has receded, and with limited fiscal headroom, the scope for government intervention remains constrained. This backdrop continues to present challenges for demand‑led sectors, particularly housing, where viability pressures persist despite gradual progress in regulatory approvals. 

By contrast, infrastructure and publicly backed investment remain relatively well protected. Strong growth in new orders during 2025, alongside an expanding long‑term pipeline, underpins our expectation that activity in these sectors will strengthen as schemes move into delivery. In the medium term, recurring energy shocks are also reinforcing the strategic case for investment across energy networks, renewables and major programmes. 

Overall, the outlook for construction remains finely balanced. Near‑term uncertainty is likely to persist, but the depth of the order book and the scale of planned investment provide a solid foundation for recovery as conditions stabilise through 2026.