The CPA’s forecast for construction output has been downgraded further in its Summer numbers due to the lagged impacts of the Middle East conflict that are starting to pass through to both the demand and cost sides of the UK economy.

Construction output year-to-date so far in 2026 has already fallen by 1.6%, according to the Office for National Statistics, and it is now expected to fall by 3.3% overall in 2026.

The fall is due to activity weakening considerably in the key sectors of private housing new build and private housing repair, maintenance and improvement during the second half of the year. Output is still expected to rise by 1.2% in 2027 but the risks remain heavily on the downside.

A spike in construction product prices in the second half of this year will come on top of a list of additional regulatory costs imposed over the last few years, with the Building Safety Levy coming into force in October 2026 and the Future Homes and Buildings Standard, which will be implemented in March 2027. Overall, private housing output is forecast to fall by 10.0% in 2026, a downward revision from -7.0% in the Spring forecast and output is forecast to remain flat in 2027, the same forecast as in Spring, but now from a lower level.

There is still expected to be significant growth in infrastructure given longer-term existing contracts, pipelines of activity and funding in place for future projects. Energy generation and National Grid distribution work are expected to continue growing strongly, as is water investment.

Overall, infrastructure output is forecast to rise by 3.2% in 2026, unchanged from Spring, and by 3.2% in 2027, a marginal revision down from 3.4% in Spring.

CPA Head of Construction Research, Rebecca Larkin, said: “Construction activity so far this year is already lower than a year earlier and there is still considerable concern that we are yet to see the key impacts of cost inflation on projects down on the ground or the extent to which it affects appetite for signing up to or starting new projects.

“In addition, this rise in construction costs runs alongside the government’s imposition of 50% import tariffs for imported steel since 1 July 2026 and the prospect of even higher financing costs if the Bank of England raises interest rates, which make worsening viability a key barrier for new projects to progress.

“The arrival of the new Prime Minister emphasises that the new government will have to focus on enabling house building and construction demand, as well as focus on reducing cost burdens on the whole construction supply chain if it is serious about pledges for more new homes, more and better quality infrastructure and the Net Zero transition.

“This is a pressing issue as essential capacity and skills have been lost in the last two years and this will only get worse as activity falls over the next 12-18 months.”