Forecasters at the Construction Products Association say the sector faces a tough 12–18 months, with oil and industrial energy price spikes already feeding into double-digit product inflation and forcing clients to delay schemes.
The downgrade marks a sharp reversal from the CPA’s winter outlook, with risks now “heavily skewed to the downside” as the fallout from Middle East tensions intensifies.
Private housing is expected to take the biggest hit. Output is forecast to slump 7% this year as higher mortgage rates, falling buyer confidence and worsening site viability stall new starts. The housing repair, maintenance and improvement market will also shrink sharply, down 8%, as households rein in discretionary spending.
There is some resilience elsewhere. Infrastructure is still tipped to grow 3.2% in 2026, supported by long-term energy and water programmes, although rail and roads pipelines are showing cracks under cost pressure.
Key sector activity forecast
Rebecca Larkin at the CPA said: “The direct impact on construction will be double-digit construction product price inflation… Indirectly, increases in inflation across the economy will also hit confidence and spending or investment.”
Even if disruption ended immediately, economists warn damage is already baked in after months of volatile energy and materials pricing.
The outlook now hinges on how long the Gulf conflict drags on — and how hard it hits inflation, interest rates and investor appetite.
The CPA has modelled two diverging paths depending on how the crisis unfolds mapping a worse and better case scenario amid the ongoing uncertainty in the Gulf.
| Construction output forecast scenarios | 2026 | 2027 | 2028 |
|---|---|---|---|
| Worse-case scenario | -4.7% | +1.1% | +2.8% |
| Better-case scenario | 0.0% | +2.2% | +3.6% |
In a downside scenario, the UK tips into recession with interest rate hikes, rising unemployment and falling house prices. That would drive a 4.7% collapse in construction output in 2026, with private housing down 10% and commercial work sliding 6% as developers shelve schemes.
At the other end, a more stable outcome — with only limited rate rises and government stimulus such as a potential “Freedom to Buy” scheme — would see output hold flat in 2026 before recovering.
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