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The first few months of 2026 have confirmed that the UK construction sector remains in a delicate, uneven recovery, rather than a broad-based rebound.
While headline outputs have stabilised following two difficult years – confidence, demand and investment remain under pressure – particularly in housing-led markets.
Ben Cussons, Business Advisory Partner shares his reflections on the sector so far this year, together with his views on what businesses should be focusing on next.
A sector that’s stabilising – but still under pressure
The ICAEW Business Confidence Monitor (BCM) provides one of the clearest signals of current sentiment, and its Q1 2026 results underline both the sector’s resilience and its continuing vulnerability.
Confidence improved in Q1 2026, with the BCM Index for construction rising from -16.2 to -8.6. But despite this improvement, construction remains among the most pessimistic sectors in the UK economy, well below the national average and its long‑run historical norm.
And sadly, this modest rebound was undermined late in the survey period by heightened geopolitical uncertainty, notably the Iran conflict, which weakened expectations for the year ahead.
Customer demand is the most acute challenge facing construction firms. More than half of businesses cited weakening demand in Q1 2026, the highest proportion of any UK sector. Late payments have also increased, applying further pressure to cashflow, particularly among SMEs.
And whilst repair and maintenance activity and infrastructure work have provided some stability, private housing demand remains notably weak.
Cost pressures had eased slightly, prior to the current war between America and Iran as materials inflation fell back from earlier peaks, but labour costs continue to rise. Ongoing increases to fuel costs are likely to cause material costs to surge, however with more materials available than demand currently this may be held at bay for now.
Firms have reported strong labour demand but limited plans for workforce expansion, reflecting the ongoing issues of skills shortages and persistent wage inflation.
It’s this combination that continues to restrict margin recovery and pushes contractors to be increasingly selective in bidding strategies.
Investment intentions remain subdued. Many firms plan to scale back capital investment and reduce R&D spending, reflecting uncertainty around future workloads.
While public sector and regulated infrastructure programmes offer medium-term promise, private investment remains cautious, and many projects continue to stall between planning consent and delivery.
Policy initiatives such as the National Housing Bank and the New Towns Programme provide potential longer-term support, but their impact on activity during 2026 is expected to be limited. Most forecasters therefore regard the first half of 2026 as a period of stabilisation rather than recovery.
Overall, the first few months of 2026 in the construction sector has been defined by fragility rather than momentum.
Confidence has improved from the lows of late-2025, but weak private demand, labour constraints and subdued investment continue to weigh on performance.
A more sustained recovery will depend on whether easing interest rates translate into firm project starts and renewed client confidence later in the year.
What construction businesses should focus on now
As a developer or contractor, the focus now is on preserving margin and maintaining pipeline quality. Prioritising sectors with resilient demand such as infrastructure and public-led projects will be important whilst also remaining disciplined on risk and pricing.
At the same time, investing selectively in skills, balancing delivery capability and building strategic partnerships will position businesses to move quickly when private sector confidence and project activity picks up later in the year.
We’re here to help
As always, our experienced team are here to support you and your property or construction business with tax, audit, advisory or outsourcing support. Get in contact with Ben or one of the team to find out more by calling 0330 058 6559 or email hello@scruttonbland.co.uk
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