Construction costs across the UK are projected to rise significantly over the coming five years, with an anticipated increase of 13.1% in building costs and a 15.5% jump in tender prices by the second quarter of 2031. This forecast from the Building Cost Information Service (BCIS) highlights persistent inflationary pressures within the sector, even as the market experiences a short-term slowdown.
The construction industry is set for a challenging year in 2026, with total new work output expected to contract by 2.7%. While a modest recovery is anticipated from 2027 onwards, the immediate outlook suggests a difficult period. Dr David Crosthwaite, chief economist at BCIS, noted that rising energy and materials expenses are reigniting inflationary pressures across the supply chain. However, weak demand currently remains the dominant factor in the market, leading to competitive conditions for contractors that limit how much higher costs can be passed on in tender prices.
The BCIS All-in Tender Price Index (TPI), which tracks the cost clients pay to commit to building, saw annual growth of 3.2% in the second quarter of 2026. The TPI is forecast to grow by 2.9% by the end of this year. Meanwhile, the BCIS General Building Cost Index (GBCI), reflecting input costs, increased by 1.4% between the first and second quarters of 2026, resulting in an annual growth of 3.8%.
Materials cost inflation has accelerated, particularly influenced by geopolitical developments that saw Brent crude prices consistently above $100 per barrel in recent months, driving up costs for energy-intensive materials. Although a recent ceasefire has eased these elevated prices, the situation remains fragile, and any sustained cost reduction is expected to filter through supply chains gradually. This volatile environment contributes to the projected 13.1% rise in the GBCI over the five-year period.
Furthermore, the financial landscape for the sector has shifted dramatically. At the beginning of 2026, markets had factored in two interest rate cuts for the year. However, expectations have now changed, with cuts no longer on the cards and a potential rate hike becoming a possibility. For a sector heavily reliant on financing conditions, which influence both development decisions and project viability, this represents a significant and rapid change in the outlook.