The Construction Products Association’s (CPA) autumn forecasts show that higher oil and energy prices since September are expected to keep inflation and lending rates higher for longer than anticipated in previous forecasts.
Consequently, construction growth forecasts have been revised down for 2026 and 2027, with the largest impacts on demand in the two largest sectors; private housing new build and repair, maintenance and improvement (rm&i). Total construction output is expected to contract by 4.0% in 2026 and rise by only 0.4% in 2027. This is a revision down from a fall of 3.3% expected in 2026 and a rise of 1.2% forecast for 2027 in Summer.
Private housing is the largest construction sector and house builders continue to report that homebuyer demand and house building activity have weakened since Spring, in line with the increase in mortgage interest rates since the Middle East conflict. Further rises in mortgage interest rates from September, combined with higher oil and energy costs, are likely to worsen affordability on the demand side and costs and site viability on the supply side over the next 6–9 months.
The government's announcement of the Your First Home equity loan scheme may provide a near-term boost to deposit affordability, particularly in more expensive parts of the country, but the issue of longer-term mortgage repayment affordability will remain a significant downside risk to demand. After an estimated 10.0% fall this year, output is now forecast to fall 3.0% in 2027.
Private housing repair, maintenance, and improvement is the second-largest construction sector and spending on major home improvements is another area where higher inflation and interest rates are expected to constrain activity as homeowners focus even more on saving or funding higher-priced general day-to-day spending instead. Basic repairs and maintenance activities have remained consistent throughout the year, and solar photovoltaic, heat pump activity and fire safety remediation continue to provide growth but without confidence to underpin larger home improvements spending, sector output is forecast to fall by 8.0% in 2026 and a further 2.0% in 2027.
In infrastructure, the third-largest construction sector, concerns have grown about potential pauses, delays, and cancellations of road projects as tight government finances are redirected to other priorities, such as social care and increased defence investment. In addition, there is greater concern that while activity continues on existing contracts for HS2, the protracted and much delayed ‘HS2 reset' will see activity on new contracts spread out over a greater number of years to reduce annual spending.
However, growth is still forecast over the forecast period, given longer-term existing contracts, pipelines of activity and funding in place for future projects in energy generation, National Grid distribution work and water investment, offsetting declines in road and rail. Sector output is forecast to rise by 2.5% in 2026, down from 3.2% in summer, and by 2.9% in 2027, down from 3.2% in summer.
CPA Head of Construction Research Rebecca Larkin said: "Construction activity in the first half of the year was already lower than a year earlier, even before we started to see the pass-through effects of higher oil and energy prices in general inflation, construction cost inflation and mortgage interest rates. This, plus another period of oil prices over $100 per barrel, signals that inflation is going to be higher for longer and the lagged impact is now going to carry through much of 2027.
"Consequently, recovery that we expected to emerge in the second half of next year has now been pushed back, particularly in privately-financed sectors that are dependent on confidence and financing costs to commit to large spending decisions.
"There are areas of growth within the forecast, including energy distribution, data centres, water infrastructure, commercial refurbishment and fit-out, general energy-efficiency improvements and public building programmes, but rising costs over the next 12 months will be a key consideration as projects move forward. Viability has risen up the risk list across construction, particularly in house building, highlighting that supply-side constraints are as big an issue as weak demand.
"The government's announcement of the Your First Home scheme provides an early sign that it is willing to step in and support demand in the housing market but more detail – and a start date – will be crucial to assess its benefit. However, with the Autumn Budget on 28 October, the government will also have to address its rising cost burdens on the house building and construction supply chains, which are increasingly making business more difficult, if we are to see significant progress on house building, more and better quality infrastructure, as well as the Net Zero transition, which will all be essential to driving UK economic growth and improvements in UK productivity."
