US tariff uncertainty threatens UK construction growth

The Construction Products Association is predicting modest growth for the industry this year and stronger growth for 2026, but admits no great certainty in its forecasts given world events.

There is not much trade in building materials between the UK and the USA, so President Trump’s tariffs are unlikely to have much direct impact on UK construction activity. But the wider impact on global business confidence and economic prosperity is expected to act as a drag on all industrial sectors.

With this in mind, the Construction Products Association’s has published its 2025 Spring Forecasts based on the exclusion of the potential impacts of US tariffs.

Even excluding the tariff impact, UK construction output is only expected to recover gradually, the CPA says. Following two challenging years that have particularly affected the two largest sectors – private housing new build and repair, maintenance & improvement (RMI) – the CPA expects total construction output to grow by 1.9% in 2025 and by 3.7% in 2026, from a low base.

This is a slight revision down from the CPA’s Winter Forecasts of three months ago due to a slow start to activity this year, weaker UK economic growth prospects, higher inflation for longer, and subdued consumer and business confidence. Furthermore, rises in the National Living Wage, employers’ National Insurance Contributions, and lower thresholds, from 1^st  April, will increase costs throughout the supply chain.

In private house-building, activity continues to recover gradually, but house-builders report that it has been a slower start to this year than anticipated. Affordability and a lack of demand remain the key constraints, with mortgage rates remaining high and no government policy stimulus. Furthermore, developers working on high-rise apartment blocks continue to suffer from six to nine month delays at the Building Safety Regulator, which disproportionally affects new house building in London and build-to-rent developments. On the positive side, however, the government published its National Planning Policy Framework, and its Planning & Infrastructure Bill is currently going through parliament. This may help deal with one constraint, but according to larger house-builders, is unlikely to make an impact on the ground until at least 2027 due to developments already in the pipeline with planning permission. Overall, private housing output is forecast to rise by 4.0% in 2025 and 7.0% in 2026. 

Private housing RMI is the second-largest construction sector, and it continues to benefit from a consistent stream of energy-efficiency, solar photovoltaic and cladding remediation work. Outside of this, however, RMI activity has been slow to start this year. A rush in property transactions before stamp duty changes on 1^st April and a strong link between transactions and home improvement work within the first six to nine months of moving in were expected to lead to a recovery in the sector in the second half of 2025.

The CPA forecasts that private housing RMI output is expected to rise by 2.0% in 2025 overall, with any growth coming at the backend of the year, and then by 3.0% in 2026.

In infrastructure, the third-largest construction sector, activity continues to remain strong on major projects such as Hinkley Point C and HS2. The Lower Thames Crossing has been given planning approval, but funding has yet to be secured yet and construction work will not start until 2027 at the earliest. Energy generation activity is expected to be the key driver of growth as wind farm activity ramps up and increases in capital expenditure in the water industry should also lead to a rise in activity from 2026. However, spending on road projects this year will be £5bn less than it previously has been, and only two large road projects are expected to start this year. As a result, roads output is forecast to fall this year.

Overall, the CPA predicts that infrastructure output will rise by 1.8% in 2025 and 4.5% in 2026 – tariffs permitting.

CPA head of construction research Rebecca Larkin said: “After a difficult couple of years, the fundamentals still point towards a return to growth in construction activity in 2025 and 2026. A gradual improvement in UK economic activity and government’s commitment to capital expenditure should boost demand, whilst government’s easing of planning for house building, infrastructure, data centres, gigafactories, schools, hospitals, and prisons should also help delivery in the medium-term.

“The big risk is the potential impacts of the US tariff disruptions in April. There is likely to be only a limited direct impact of tariffs on construction as three-quarters of construction products used in UK construction are sourced domestically. Even when the UK imports construction products, two-thirds are from the EU.  However, this could be overshadowed by any effects on global and UK economic growth and the increase in uncertainty. This uncertainty adds a higher risk over the cost of new large projects, contractors working on existing fixed-price contracts and is also likely to dent investor confidence. As a result, it could mean a delay or hiatus in contract awards and tenders for new, large commercial, industrial and build-to-rent developments, in addition to less appetite for private investment in infrastructure.

“The CPA is forecasting construction output to rise by 1.9% in 2025, and over three-quarters of this growth (79%) is expected to be driven by private sector investment. UK construction is pro-cyclical, meaning construction activity moves in line with the UK economy. Nevertheless, construction activity is also three times more volatile than the UK economy so it would not take a significant hit to global and UK economic growth for construction growth to be badly affected over the next 12-18 months.”

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