The Building Cost Information Service (BCIS) has released its latest five-year construction industry forecast, revealing that building costs are set to rise by 15% and tender prices by 16% between 2025 and 2030. While new work output is projected to increase by 18% over the same period, the sector continues to face challenges from sticky inflation, labour shortages, and slow demand recovery.
Economic headwinds persist despite calls to “get Britain building”
According to Dr David Crosthwaite, Chief Economist at BCIS, the final months of 2025 will see the industry navigating a complex landscape of stagnant demand and persistent inflationary pressures.
“Heading into the last few months of the year, the ‘get Britain building’ rhetoric hasn’t yet turned into delivery,” he said. “Demand is broadly flat and inflation is sticky, leaving a stagflation-type squeeze: weak growth on one side, elevated labour and materials on the other, and margins under pressure. We therefore expect only a modest uptick in output in 4Q2025.”
The construction sector is still reeling from recent years of volatility, where cost inflation, supply chain disruptions, and skills shortages have tested resilience across the industry. The latest BCIS Construction Forecast underscores that, while conditions are stabilising, sustained recovery remains gradual and highly sensitive to macroeconomic conditions and public sector investment decisions.
Labour remains the dominant cost driver
On the input cost side, labour continues to be the primary factor driving price inflation. The BCIS Labour Cost Index recorded a 7.1% annual increase in 2Q2025, influenced by higher National Insurance Contributions and increases in the National Living Wage. Over the next five years, BCIS forecasts a 15% rise in labour costs between 3Q2025 and 3Q2030.
Dr Crosthwaite warned that the skills shortage in the construction workforce remains a significant risk to cost stability: “Similarly to previous forecasts, labour cost risks remain on the upside, as skills shortages remain prevalent in the market and continue to impact projects.”
The construction labour market continues to grapple with demographic challenges, limited training pipelines, and competition from other industries. These factors, combined with policy uncertainty around immigration and apprenticeship funding, are keeping wage inflation elevated even as demand softens.
Materials costs stabilise, but future pressure likely
While materials prices have largely stabilised following sharp increases in recent years, BCIS expects that renewed construction activity could apply upward pressure on costs as demand strengthens toward the end of the decade.
The BCIS Materials Cost Index recorded a 0.5% annual increase in 3Q2025, with a 13% cumulative increase expected by 3Q2030. This indicates a return to more typical inflationary trends after the extreme volatility seen during the pandemic and post-Brexit years.
Tender prices rising in line with cost pressures
Reflecting these input trends, the BCIS All-in Tender Price Index, which tracks the trend of contractors’ pricing levels in accepted tenders, rose by 2.5% annually in 3Q2025, slightly higher than the 2.3% growth seen in the previous quarter.
This modest increase demonstrates contractors’ cautious approach to tender pricing strategies, as they balance the need to maintain competitiveness with the necessity of covering higher labour and material costs.
BCIS forecasts that tender prices will rise by 16% between 2025 and 2030, driven by both cost inflation and gradually improving workload levels as projects resume.
Output set for recovery from 2026 onwards
Following a 5.1% decline in total new work output between 2023 and 2024, the BCIS expects subdued growth in 2025, with output expected to rise more meaningfully from 2026 onwards.
Data from the Office for National Statistics (ONS) showed that new work output grew by 1.1% in 2Q2025 compared with the first quarter, representing a 3.8% annual increase. Infrastructure performed particularly well, recording a 3.2% annual rise, a sign that public sector investment and large-scale civil engineering projects may be starting to gain traction.
“We are expecting more robust new work output growth from next year and over the rest of the forecast period,” said Dr Crosthwaite. “Momentum should build in 2026 as delayed schemes progress, public investment starts to land and housing activity recovers.”
Key insights from the BCIS five-year construction forecast (2025–2030)
- Building costs: +15% by 3Q2030
- Tender prices: +16% by 3Q2030
- Labour costs: +15% by 3Q2030
- Materials costs: +13% by 3Q2030
- New work output: +18% growth forecast between 2025 and 2030
Implications for the UK construction and digital construction sectors
For contractors, developers, and digital construction professionals, these projections highlight the importance of cost control, productivity gains, and technology adoption. As Building Information Modelling (BIM), digital twins, and data-driven project management tools become more widespread, firms with advanced digital construction capabilities are better positioned to manage volatility, optimise procurement, and forecast with greater accuracy.
Integrating digital construction solutions can help offset some of the inflationary pressures identified in the BCIS forecast. By improving design efficiency, materials tracking, and supply chain visibility, digital tools can support more resilient project delivery amid rising costs.
Gradual recovery built on innovation and investment
The BCIS five-year forecast paints a picture of a sector in slow but steady recovery. While rising costs and labour shortages remain a concern, renewed government infrastructure spending, private sector investment, and the digitisation of construction workflows are set to support more stable growth beyond 2026.
As the UK construction industry continues its transition toward digital transformation and sustainable building practices, firms that combine cost discipline with innovation will be best equipped to thrive in the decade ahead.
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