UK construction cost forecast 2026: where costs are heading and why
What the leading indicators say about the next 12 to 18 months of UK construction cost inflation.
Source: ONS Construction Output Price Indices and Labour Cost Indices, MHCLG Monthly Building Materials. Base: 2015 = 100.
The honest answer to "where are UK construction costs heading?" is: nobody publishes a precise forecast that's reliably right, and neither do we. What we can do is show the historical trajectory, read the leading indicators, and set out the scenarios that fit the current data. If you're pricing work in 2026 for delivery in 2027, the scenario framing matters more than any single forecast number.
The trajectory so far
What the trajectory tells us
Three distinct regimes are visible in the ONS output price index for new work. From 2014 to early 2020, construction costs rose at a gentle 2 to 3% per year, broadly tracking general inflation. The 2020 Covid shock produced a brief demand collapse, followed by an unprecedented 2021 to 2022 surge as the reopening and supply-chain constraints collided. The index peaked in mid to late 2022.
From 2023 onwards, the headline has behaved very differently from the components underneath. The aggregate index has flattened, which looks like equilibrium, but it's masking a clear divergence: labour continued to rise while materials fell back from their peak. Firms reading only the headline number have misread the cost environment since 2023. The components tell the real story.
Leading indicators
Three indicators move earliest and matter most for anyone pricing residential work in the next 12 to 18 months. The table below shows their current state and what each one suggests.
| Indicator | Current | Trend | What it suggests |
|---|---|---|---|
| Material prices | loading | loading | loading |
| Labour costs | loading | loading | loading |
| Sector output price | loading | loading | loading |
All three pulled live from ONS and MHCLG via the Trails Cost Tracker. Qualitative labels derive from the current year-on-year values.
The outlook for 2026 to 2027
Rather than predict a single number, three scenarios that fit the current data. The central case looks most likely; the upside and downside risks both have plausible triggers but neither has clearly shown up yet.
Central case: labour-driven drift, materials flat
Labour continues to rise at roughly 4 to 5% a year through 2026 and into 2027, constrained by ongoing post-Brexit trade shortages and infrastructure demand. Materials move broadly sideways, with some individual commodities (steel, timber, cement) drifting up gently in line with general producer-price inflation. The blended output index prints somewhere in the 3 to 4% annual range for the next six quarters. This is roughly the pattern of 2024 and 2025 extended forward, with no assumed shock.
Upside risk: a second materials shock
A geopolitical disruption to energy or shipping, a revival of global construction demand, or a domestic policy change that accelerates house-building could lift materials meaningfully above trend. Historically these shocks have been unpredictable but visible in advance once underway. The MHCLG monthly material indices are the fastest read; watch steel, timber and cement for the earliest signal. If materials pick up while labour stays elevated, the headline could spike back to 6% plus quickly.
Downside risk: labour demand collapses
A deep recession or a sharp drop in infrastructure and housing pipelines could remove the demand pressure keeping labour rates high. In that scenario labour inflation flattens within two to three quarters and the headline index slows towards 1 to 2% annually. This is the historically rarer scenario; labour has rarely fallen outright in UK construction even in recessions, because supply has fallen faster than demand. But a severe enough drop in demand could plausibly flatten it for the first time in years.
What this means for pricing
Three concrete implications for design-build firms quoting work now:
- Tighter quote-validity windows. A four-week or six-week quote validity is defensible in this environment. Twelve weeks is not, unless you price the labour drift in. Re-quote older proposals that have been sitting with the client.
- Contract type should follow labour share. Labour-heavy projects (loft conversions, bespoke joinery, heritage refurbishment) carry more fixed-price risk than materials-heavy ones (new-build superstructure, groundworks). See the fixed-price vs cost-plus guide for a matrix.
- Contingency sized to the scenario, not the headline. A 5% contingency covers central-case labour drift on a 9-month job at typical labour share. Below that and you're exposed to any modest variance. Above 10% and you're pricing for the upside-risk scenario; be explicit with the client that's what you're doing.
Caveats
This article is not a precise forecast. It doesn't predict individual sub-trade prices (bricklayer rates can diverge from the ONS labour index meaningfully over short periods), it doesn't model commodity spikes in specific materials, and it's not a substitute for the firm-specific judgement a QS brings to a live quote. Treat it as scenario framing, not a number to lift into a cost plan. The live figures underlying it are in the Cost Tracker and refresh each quarter.