Construction outlook: poll of industry professionals

2025 got off to a bumpy start for Chancellor Rachel Reeves with calls from some quarters for her resignation as the bond market reacted to the implications of the Autumn Budget. What might a new year hold for the construction industry?

With total new work output expected to have declined by 4.7% in 2024 and to increase by 1.8% in 2025, according to our latest forecast, we surveyed more than 320 construction professionals – the majority cost consultants and surveyors – to gather their insights on what lies ahead in 2025.

More than one-third (38%) of professionals polled said they were heading into 2025 less optimistic than they were in 2024, while a similar number (37%) said they felt the same level of optimism as they did last year. 21% said they felt more optimistic.

Dr David Crosthwaite, Chief Economist at BCIS, said: ‘We ended 2024 with fairly upbeat expectations for 2025, but January has already proven how difficult it will be for the government to realise its growth ambitions. Their success or otherwise is going to impact investment in both the private and public sectors.

‘So far, the financial markets have not responded well to the anticipated impacts of the Autumn Budget and the latest GDP figures show that the economy is flatlining or at best bumping along the bottom.’

When asked about their workload expectations for the next 12 months, 42% of respondents predicted a rise, while 37% expected it to stay the same. Only 11% anticipated a decrease in workload, with 10% unsure.

Materials cost inflation has been moderating since peaking in 2022 and annual growth in the BCIS Materials Cost Index was in negative territory between 3Q2023 and 2Q2024. Provisional figures for 4Q2024 show 0.8% annual growth in the index. Despite the overall cooling in the past 18 months, specific materials, particularly those related to mechanical and electrical (M&E) works, continue to see faster price hikes, especially in high-demand areas like data centre construction.

When we asked respondents about their expectations for materials costs over the next 12 months, 69% predicted an increase, 19% expected them to stay the same, and only 2% believed they would fall. 11% were uncertain about what lies ahead for material costs.

Labour costs continue to be the major driver of project expenses, and though annual growth in the BCIS Labour Cost Index is forecast to slow in the first quarter of 2025, increases to employers National Insurance contributions and the National Living Wage will have an impact from April. We’re forecasting labour costs to increase overall by 19% between 4Q2024 and 4Q2029.

According to the poll, 75% of construction professionals expected labour costs to rise in the next 12 months, while 15% believed costs will stay the same. Only 2% predicted a decrease, while 7% were unsure.

The issue of labour availability continues to be a concern, particularly in light of current demand levels masking skills shortages. When asked about labour availability over the next year, 41% of respondents said they expected it to remain unchanged, while 39% expected availability to worsen. Only 9% said they anticipated an increase, with 11% unsure of what will happen.

Dr Crosthwaite said: ‘Construction employment is 20% lower than it was pre-2008 financial crisis. We’ve been talking recently about how we can grow the workforce as demand picks up, but this raises a critical question: Has muted demand reduced the need for labour, or has the shrinking workforce availability constrained demand growth? Without action to improve labour and skills availability, the sector risks a tighter supply position, potentially stalling growth further.’

You can access the poll results here.

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