The UK construction industry is set to face a period of contraction this year, with a 1% decline anticipated, before embarking on a substantial recovery from 2027. This outlook comes from Glenigan, a specialist in forecasting and market intelligence, which highlights a turbulent economic environment as the primary reason for a downgraded short-term forecast across the sector.
Despite the immediate challenges, the firm projects a robust rebound in construction activity, with an 11% increase expected in 2027, followed by a further 4% rise in 2028. This would leave overall activity 13% higher than 2025 levels, signalling a strong return to growth. The recovery is attributed to an anticipated strengthening of the UK economy, alongside the sector's inherent resilience in navigating ongoing external pressures and difficult market conditions.
Focusing specifically on residential construction, housebuilding is expected to remain under pressure through 2026, building on a weak performance in the latter half of last year. Both private and social housing sectors are forecast to end 2026 in decline, with private housebuilding output projected to fall by 5% and social housing construction by 3%.
However, the outlook improves significantly from 2027. Private housebuilding is expected to rebound by a substantial 13% in 2027, followed by an additional 5% increase in 2028. This recovery is anticipated to be bolstered by falling borrowing costs, a boost in consumer confidence, and an easing of supply-side constraints. Furthermore, planning reforms and reduced regulatory delays are expected to increase the availability of development sites, supporting this growth.
The social housing sector is also forecast for a strong recovery, with output predicted to rise by 8% in 2027 and a further 4% in 2028. This uplift is expected to be driven by increased government funding and adjustments to the social housing rent cap, which should encourage greater investment from housing providers. Accelerating approvals from the Building Safety Regulator are also set to facilitate the delivery of more high-rise residential developments over the coming years.
Allan Wilen, Glenigan's economics director, commented on the recent turbulence, noting that investors and developers have been reassessing and rescheduling projects. However, he expressed optimism for an improved economic outlook once current uncertainties dissipate, supporting a strengthening of construction activity from 2027 across most private and public sector areas. He emphasised the need for contractors to be agile and responsive to these more favourable conditions.