A mixed bag of prospects awaits construction in 2026

David Crosthwaite is the chief economist at the Building Cost Information Service

Construction has shown remarkable resilience this year despite numerous headwinds. For now, the outlook for 2026 appears slightly more stable, although meeting current growth predictions won’t be easy.

According to the latest BCIS forecast data, total new work output will rise by 16 per cent between 2025 and 2030.

“Investors from across the pond have been all but lining up for a slice of the UK’s burgeoning AI ecosystem this year”

In the coming months, it’s likely public sector non-housing projects will continue to do the heavy lifting where construction’s output growth is concerned as the private market works its way through a sticky mix of high interest rates, inflation and the lingering effects of pre-Budget uncertainty.

The latest BCIS Tender Price Index (TPI) Panel reports addressed this dichotomy – panellists pointed to a lack of private sector tender opportunities in the fourth quarter of 2025 against a healthier flow of healthcare, justice and defence work.

Other barometers posit 2026 as a stage set for infrastructure’s prosperity. Insight from the Global Infrastructure Investor Association’s second pulse survey of the year suggests investor sentiment in UK infrastructure is finally turning a corner, largely due to regulatory reform, which contributed to the UK earning its highest score for investment appeal since the second quarter of 2023.

The government would be wise to build on this momentum by confirming its private finance strategy early in 2026. The new model for public-private partnerships (PPPs), teased in the Budget, is under development and a start, but the government must be more transparent about its approach to private funding mechanisms if it’s to encourage investors off the fence.

Growth opportunities

Data centres are a more immediate growth opportunity for construction in this regard; investors from across the pond have been all but lining up for a slice of the UK’s burgeoning AI ecosystem this year.

Our appetite for AI is growing exponentially (evident in both the government’s industrial strategy and the amount of AI and robotics startups cropping up) and presents an almost irresistible investment opportunity given the digital infrastructure upgrades needed to scale up innovation.

So firmly are data centre projects a part of the government’s plan for economic recovery, developers will soon be allowed, under certain conditions, to request that their schemes be processed as nationally significant infrastructure projects to streamline planning approval.

All data centre projects in AI Growth Zones will also qualify for the new Connections Accelerator Service, due to be rolled out by the end of 2025, to speed up grid connectivity.

It’s a sub-sector that holds a lot of economic promise for a currently low-growth construction industry but one with certain drawbacks.

As described by BCIS TPI panellists, data centre construction is mechanical and electrical (M&E)-intensive and when coupled with M&E subcontractor insolvencies, poses a significant risk to cost stability and project delivery across different construction markets.

With the minimum and living wages rising again in April, the combination of labour cost inflation and high demand for data centres could pressurise and destabilise other sub-sectors.

That said, at least there’s some growth opportunities here.

Elsewhere in construction, low-hanging fruit looks a little more sparse.

Future growth in the housing market isn’t guaranteed and seems largely dependent on viability issues and planning approval delays clearing up. The Building Safety Regulator (BSR) is making progress on the latter – its backlog of live legacy cases stood at 63 as of 24 November.

However, there are still hundreds of applications to work through, and the possibility of a dedicated Remediation Unit is challenged by a national lack of qualified expertise and heavy investment in the BSR’s new Innovation Unit.

Hopefully, 2026 will see a return of private housing demand as inflation slows, wages go up and the cost of borrowing comes down.

Post-Budget, construction could be in for another rocky 12 months – the Office for Budget Responsibility didn’t downgrade its growth forecasts for the next few years for fun.

A government new year’s resolution to better protect construction supply chains, perhaps through further business relief measures where feasible, certainly wouldn’t go amiss.