The Construction Products Association (CPA) has cut its forecast for construction output growth in 2027, as higher oil and energy prices are expected to keep inflation and interest rates higher for longer.
In its autumn forecast, published on Monday, the CPA warns that output for this year is expected to fall by 4 per cent and rise only by 0.4 per cent next year.
This is a downgrade from its summer forecast of a 3.3 per cent fall in 2026 and 1.2 per cent growth in 2027.
The CPA still forecasts growth of 2.9 per cent in 2028, however, due to longer-term existing contracts in place for energy and water investments.
It believes this growth will offset potential declines in road and rail.
The latest CPA forecast says that rises in oil and energy prices since September this year are expected to keep inflation and lending rates higher for longer than anticipated in its previous forecasts.
The largest impacts are due to demand in private housing new builds and repair, maintenance and improvements, it adds.
“Further rises in mortgage interest rates from September [2026], combined with higher oil and energy costs, are likely to worsen affordability on the demand side and costs and site viability on the supply side over the next six to nine months,” according to the CPA.
Its forecast also warns that infrastructure could be impacted by delays and cancellations of road projects as tight government finances are redirected to other priorities, such as social care and increased defence investment.
“In addition, there is greater concern that while activity continues on existing contracts for HS2, the protracted and much delayed ‘HS2 reset’ will see activity on new contracts spread out over a greater number of years to reduce annual spending,” it says.
The CPA predicts that infrastructure output will only rise by 2.5 per cent in 2026, down from the 3.2 per cent it forecast in the summer.
Its head of construction research Rebecca Larkin said: “Construction activity in the first half of the year was already lower than a year earlier, even before we started to see the pass-through effects of higher oil and energy prices in general inflation, construction cost inflation and mortgage interest rates.
“This, plus another period of oil prices over $100 per barrel, signals that inflation is going to be higher for longer and the lagged impact is now going to carry through much of 2027.
“Consequently, recovery that we expected to emerge in the second half of next year has now been pushed back, particularly in privately-financed sectors that are dependent on confidence and financing costs to commit to large spending decisions.”
Larkin said some sectors are showing growth, such as energy distribution, data centres and water infrastructure.
But she warned that rising costs over the next 12 months will be a key consideration as projects move forward.
“Viability has risen up the risk list across construction, particularly in housebuilding, highlighting that supply-side constraints are as big an issue as weak demand,” she said.
“With the autumn Budget [this Wednesday], the government will have to address its rising cost burdens on the housebuilding and construction supply chains.”