The UK construction sector is expected to contract by 1% this year before returning to growth in 2027, according to Glenigan’s latest industry forecast.
The forecasting and market intelligence specialist says a turbulent economic backdrop has forced it to downgrade its short-term outlook for the sector, with domestic and international events creating fresh uncertainty for businesses and developers alike.
However, the slowdown is expected to be temporary. Glenigan forecasts construction activity will rebound by 11% in 2027, followed by a further 4% increase in 2028, leaving overall activity 13% higher than 2025 levels.
The report suggests the recovery will be driven by a gradual strengthening of the UK economy, with the sector showing resilience despite ongoing external pressures and challenging market conditions.
Looking specifically at the residential construction sector, housebuilding is expected to remain under pressure throughout 2026 following a weak second half of last year, with both the private and social housing sectors forecast to end the year in decline.
Private housebuilding output is projected to fall by 5% in 2026, while social housing construction is expected to contract by 3%. However, the outlook improves significantly from 2027 onwards, with both sectors forecast to return to growth.
Private housebuilding is expected to rebound by 13% in 2027, followed by a further 5% increase in 2028. The recovery is expected to be supported by lower borrowing costs, improving consumer confidence and an easing of supply-side constraints. Planning reforms and a reduction in regulatory delays are also expected to increase the availability of development sites.
In the social housing sector, output is forecast to rise by 8% in 2027 and a further 4% in 2028. Increased government funding and changes to the social housing rent cap are expected to strengthen investment by housing providers, enabling more projects to move forward.
An anticipated acceleration in approvals from the Building Safety Regulator is also expected to support the delivery of more high-rise residential developments over the forecast period.
Glenigan’s economics director, Allan Wilen, said: “It’s been a turbulent few months for the UK construction sector, with investors and developers reassessing and rescheduling planned projects. However, the economic outlook is expected to improve once the current fog of war dissipates, supporting a strengthening in construction activity from 2027 with an uplift across almost all private and public sector verticals.
“As our forecast shows, there are some particularly exciting growth areas as Government funding is released and investor appetite starts to return to the market. Contractors will need to be quick off the mark as more favourable conditions are finally felt. There will be no time for hanging around and the quicker the sector’s reaction, the sooner momentum will return and stick.”
