Construction Output to Fall 4% in 2026 as Recovery Hopes Fade

The Construction Products Association now expects construction output to fall 4% in 2026, a steeper drop than the 3.3% decline it forecast in the summer. The downgrade is the headline. The footnote is worse: the CPA has cut its 2027 growth forecast by two-thirds, to 0.4%.

That's not a recovery. That's a flatline with good PR.

Why has the outlook darkened?

Renewed Middle East conflict and rising oil and energy prices have dealt a fresh blow to recovery hopes, keeping inflation and borrowing costs higher for longer. The CPA warns the squeeze on confidence, spending and project viability will drag through much of next year, hitting privately-financed sectors hardest.

Rebecca Larkin, the CPA's head of construction research, said: "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."

She added: "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."

How bad is house building?

Private housing output is forecast to tumble 10% this year and fall another 3% in 2027. Weaker buyer demand and rising costs are hitting builders from both sides.

Smaller house builders are suffering disproportionately. Affordability remains the main brake on demand in expensive areas, while poor site viability is blocking development in lower-priced markets. Supply-side constraints, in other words, are now as big a problem as weak demand.

Larkin put it plainly: "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 planned 'Your First Home' equity loan scheme could help buyers overcome deposit hurdles. The CPA cautions, though, that mortgage repayment affordability would remain a major constraint — and full scheme details and a start date are still needed. A scheme without a launch date is, for now, a press release.

Where is the growth?

Infrastructure remains the brighter spot, though even here the CPA has trimmed its forecasts to 2.5% growth this year and 2.9% in 2027. Energy and water investment are expected to offset shrinking road and rail workloads.

The caveats stack up quickly:

• Road projects face pauses, delays and cancellations as tight public finances are redirected to other priorities.
• The long-delayed HS2 reset, the CPA fears, will spread new contracts over more years to reduce annual spending.
• Data centres, commercial refurbishment and fit-out offer pockets of growth, but overall commercial output is forecast to fall 5.9% this year before edging up just 0.5% in 2027.

What happens next?

The CPA is pressing ministers to use the 28 October Budget to tackle rising costs across house building and the construction supply chain. Whether the Treasury listens will shape whether 2027's 0.4% is a floor, or just a pause on the way down.