INPUT COSTS

Our view on pricing

Addressing systemic labour issues

Construction labour has been our main focus in recent reports, recognising a loss of 341,000 people from the construction workforce since 2019, representing a 14.0 percent decline in the total workforce. This reduction has occurred despite anticipated growth in construction output, as access to the traditional transient workforce in the UK is restricted by the post-Brexit visa system.

The construction sector’s workforce in the UK is projected to grow at an average annual rate of 2.1 percent between 2025 and 2029 (Figure 7). The Construction Industry Training Board suggests that to deliver this growth, the sector must recruit an additional 48,000 people annually, a stark reversal of the trend observed since 2019.

While ONS data indicates increased productivity in the construction sector since 2020, further rapid improvements are essential to counter the impact of a shrinking workforce. In the near future, AI could help support this push, freeing people from the process and enabling them to do effective work.

As a consequence of this decline, wages have risen by almost 4.0 percent compared to last year (a little more than CPI), and the Building Cost Information Service (BCIS) expects this to increase to 5.0 percent by the end of the year, although earnings growth is expected to slow next year.

Market uncertainty is reflected in staffing levels. Despite predictions of higher construction output in the coming years, construction unemployment has edged up (though it remains below the long-term average), and the number of vacancies in the industry has decreased.

Fortunately, there has been a concerted effort from both industry and the government to address the systemic issues in the UK’s construction labour market. The government has launched Skills England, which connects businesses with training providers and unions, as well as national and local government, to ensure there is a workforce to deliver the Industrial Strategy. This is bolstered by 10 new Technical Excellence Colleges, which aim to train more than 40,000 “builders, bricklayers, electricians, carpenters, and plumbers.”

Simultaneously, the industry has focused on community outreach and robust apprenticeship programmes. This additional effort seems to be yielding positive results, as “building trade” has maintained a position in the BBC Bitesize Careers survey after its entry last year, climbing to ninth place, ahead of “pilot.”

Materials

Overall, material prices have remained relatively subdued this year. The Department for Business and Trade’s Construction Material Price Index (compiled by the BCIS) shows an average increase of just 0.3 percent in the year to August 2025 (Figure 8). This sentiment is echoed by the latest Builders Merchant Building Index from the Builders Merchant Federation (BMF), which reported total sales values increased by 0.1 percent in the year to July. The BMF stated that whilst volume sales had risen 0.6 percent, prices were 0.6 percent lower than a year ago.

Low demand is undermining material costs. S&P Global’s Construction PMI survey reported a substantial rise in average cost burdens, but sales volumes decreased for a tenth successive month, allowing companies to negotiate price reductions amid increased competition between vendors. S&P Global summarises that UK constructors are preparing for a difficult time ahead by keeping fewer materials in stock and reducing the number of workers on their payrolls.

Despite concerns at the beginning of the year, tariffs have not been a significant price driver for UK construction materials. The UK market is fairly removed from the US supply chain and is struggling with its own issues. Steel production has barely been out of headlines this year, due to its high production costs and falling prices. Domestic cement production has dropped to the lowest level since 1950, which the Mineral Products Association attributed to the high cost of energy for production and increased pressure from imports. In its half-year results, Ibstock said that trading conditions had not lived up to expectations, as near-term uncertainty had led to weaker demand.

PRICING

Our view on pricing

Sentiment in the London investor-developer market appears very similar to the beginning of the year, albeit with a slightly more pessimistic outlook for the broader market. The London market is not moving forward confidently, but tendering conditions remain affected by the strength and progress in other sectors, which teams need to remain aware of. Nevertheless, robust tenant demand for high-quality, ESG-compliant spaces will support schemes which are well-funded, designed and communicated to the market.

These schemes need to navigate difficult viability conditions whilst ensuring projects keep pace with evolving regulations and specifications. This makes it increasingly important for clients and project teams to focus on the elements they can control and influence to drive real value into a successful project. Securing labour is an issue and a main driver of inflation, while material price inflation is subdued, and margins remain competitive.

We have confirmed our view of tender price inflation for 2025 at 3.0 percent and maintained our projections at 3.5 percent for both 2026 and 2027. However, our forecast for 2027 requires careful monitoring, as it could be affected by increased confidence if the London construction economy recovers, particularly in the major and commercial project sectors.