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Published: 17/06/2025
Between the Spending Review and the upcoming 10 Year Infrastructure Strategy, the future is looking somewhat brighter for construction’s investment climate. However, the government and the construction sector still have roadblocks to overcome, with geopolitical unrest and uncertainty dampening investment opportunities.
With the strategy expected imminently, our chief economist, Dr David Crosthwaite, unpicks construction’s investment climate post-Spending Review, and the challenges that lie ahead.
Uncertainty and unrest rock the boat
The significant capital spending confirmed for housing and infrastructure last Wednesday was a step forward for the construction sector. Two days later, conflict between Israel and Iran threatened to push progress two steps back.
Without the 10 Year Infrastructure Strategy, the construction sector and investors are effectively in limbo. But even after the strategy’s publication, will new funding and a project roadmap be enough to lift the investment climate?
The initial mood in the sector post-Spending Review appears broadly positive. On top of big capital announcements for housing, energy and transport, the government has since revealed the first of its plans under the strategy – a 10-year, £7.9 billion package for flood defences and a £1 billion structures fund including a cash injection for the Lower Thames Crossing(1). The former in particular is hoped to create significant cost savings; every £1 spent on flood defences is expected to prevent £8 in economic damage(2).
However, concrete signs of investor confidence likely won’t show until after the infrastructure strategy is released and the construction sector can see when projects are going to materialise. In the latest gathering of the BCIS Civil Engineering Tender Price Index Panel, comprised of cost consultants from firms involved in multiple civil engineering tenders in the UK, there were reports that the sector remains hesitant ahead of the infrastructure pipeline publication and that the current ambiguity of project start dates is slowing growth rates in some areas. They gave the lack of clarity over the latest timeline for the TransPennine Route Upgrade as an example.
Unrest in the Middle East is making the investment climate more complex too. Conflict between Israel and Iran has the potential to further destabilise the global economy as ships transporting goods and oil through the Strait of Hormuz come under attack or are diverted. Recent events have led to a spike in oil prices, which is inflationary, and will likely feed through to increased construction costs. Four days into the fighting, oil prices were up by 1% with Brent crude rising by 7% on Friday and again by 0.5% on Monday(3).
In light of underlying levels of inflation, on top of unrest in the Middle East, it’s unlikely the base rate set by the Bank of England’s Monetary Policy Committee will move on Thursday. Borrowing rates will therefore remain unchanged and given the disappointing set of GDP results published recently, a continued reluctance for the private sector to invest is probable.
At this stage, it’s also too early to say whether the government’s Spending Review will kickstart private sector growth. Come the Autumn Budget, the chances are the government will have to tinker with tax at some level to cover some of the proposed expenditure outlined in the Spending Review. Whether it chooses to up tax on workers or raise the taxation burden on businesses is unknown. Looking at the negative impact of increases to business taxation on construction activity and investment to date, prudence suggests that the government should tread carefully if it wants to fulfil its infrastructure strategy.
For now, at least, improvement in construction’s investment climate is a waiting game. Only disclosure of the infrastructure strategy and pipeline will give a clearer picture of demand and investment opportunities to come.
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(1) GOV.UK – £1 billion backed renewal of broken bridges, ruined roads and tired tunnels and new Thames Crossing cash – here
(2) GOV.UK – Hundreds of thousands of homes and businesses to benefit from largest flood defence investment programme in history – here
(3) Guardian – FTSE 100 closes near record high, and oil price falls, on reports Iran seeks talks with Israel – as it happened – here
