Tender prices and construction costs are predicted to rise by 15 per cent and 14 per cent respectively over the next five years, according to the latest Building Cost Information Service (BCIS) forecast.
Its previous five-year forecast in January envisaged a 15 per cent increase in building costs and a 17 per cent rise in tender prices by Q4 2030.
The latest forecast, which runs to the first quarter (Q1) of 2031, also predicts that new work output will grow by 12 per cent in the five-year period.
This is lower than the 16 per cent predicted in its previous forecast.
BCIS chief economist David Crosthwaite said the ongoing Middle East conflict had “clouded the outlook” for the construction sector.
“As a result, the cautious optimism that characterised the early part of the quarter has increasingly been overshadowed by concerns over supply disruption and cost pressures.
“At this stage it remains too early to fully assess the economic implications. However, a prolonged period of elevated energy prices could sustain wider inflationary pressures and delay the pace of monetary easing.
“With interest [rate]-sensitive sectors such as residential construction already facing subdued demand, financing conditions will remain an important factor shaping activity over the coming months.”
Even before the latest Middle East conflict erupted, data from Glenigan revealed a 24 per cent decrease in housing project starts year-on-year in January, while main contract awards and detailed planning approvals in the residential sector were each down by a third.
The BCIS All-in Tender Price Index (TPI), which measures the trend of contractors’ pricing levels in accepted tenders, rose by 2.8 per cent year-on-year in Q1 2026, up from 2.5 per cent in the previous quarter.
Labour remains the primary driver of project input costs and skills shortages “continue to prevail”, the BCIS said.
While labour availability is “generally sufficient”, the BCIS described issues in specialist areas such as facade works.
It said total new work output increased by 1.8 per cent in 2025, but expects subdued growth in new work in 2026 as residential and commercial sectors continue to struggle.
The latest five-year BCIS cost and tender price forecast was produced with information available up to 10 March.
A fortnight later, the government announced that overall quotas for steel imports will be cut by 60 per cent and imported steel will incur a 50 per cent tariff, up from the current rate of 25 per cent, from 1 July.
Industry figures said the move will have construction cost implications.
Mace Group chairman and Construction Leadership Council co-chair Mark Reynolds, for instance, said it was “ill-timed and unhelpful, and will only exacerbate the challenges” around construction costs related to the Middle East conflict.
Jonathan Clemens, chief executive of the British Constructional Steelwork Association, said the steel tariff decision will result in “higher costs across construction”.
