24 June 2026 – Arcadis, the world’s leading company delivering data-driven sustainable design, engineering, and consultancy solutions for natural and built assets, today released its latest Market View - an independent analysis of the UK construction sector - highlighting growing concerns over inflation-driven cost increases and the impact of new regulatory measures on project delivery and sector resilience.
Despite a promising start to the year, the UK construction sector is contending with renewed volatility, as the Iran conflict drives up energy and material prices and introduces fresh uncertainty to supply chains. Even with the signing of the Islamabad Memorandum of Understanding, disruption to energy markets is expected to continue throughout 2026. We have increased the upper range of forecasts by 1% in 2026 and 2027 to accommodate potential Gulf-driven inflation.
Arcadis’ analysis shows that new-build construction output in Q1 2026 has dropped by 6% compared to a year ago, with housing and transport infrastructure particularly affected. Increased headwinds including delayed cuts to interest rates have led to a cut to tender price forecasts for private sector building in 2028.
The report, entitled ‘Against all odds’, finds that contractors focused on the private sector are increasingly absorbing price risk in their bids in order to secure critical workload, a strategy that may temporarily mask the full impact of rising costs. Meanwhile, new tariffs on steel imports and the upcoming Carbon Border Adjustment Mechanism signal additional challenges for project viability, especially as the supply chain prepares for an upgrade to Building Regulations from March 2027.
Arcadis points to the importance of other aspects of regulatory reform and policy stability in restoring confidence and enabling growth. While some regulated sectors remain robust, the slow pace of implementation for key reforms - including streamlined planning and accelerated power connections - risks undermining momentum across the industry.
Other notable findings from the report include:
- Construction workforce capacity remains high, but negative earnings growth and low vacancy rates reflect subdued market activity.
- Brent crude oil prices fluctuated wildly during the Gulf conflict and are presently 8-10% above pre-conflict levels. Arcadis analysis shows that higher energy costs could have an inflationary impact – particularly for civil engineering projects.
- Regulated sectors such as water and power transmission continue to offer strong prospects for workload growth, but broader sector recovery is dependent on decisive action from government and industry stakeholders.
- The UK construction sector’s crisis response, developed during previous periods of volatility, is once again being deployed as companies work to mitigate risk and maintain delivery.
Simon Rawlinson, Head of Strategic Research and Insight, Arcadis, said:
"The UK construction sector is navigating a highly uncertain landscape, as inflation, energy volatility, and regulatory change converge. Contractors and clients are demonstrating resilience, but sustained recovery will depend on prompt government action and continued reform. The outlook remains cautious as the industry adapts to new risks and prepares for further change."
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