2026 in construction: a look ahead

Michael Comba and Rachel Murray-Smith provide a summary of the key points of interest in the upcoming year in the construction sector, predicting what will shape the future of this area.

2025 was a mixed bag for the construction sector. There was falling inflation and modest annual growth. Yet the sector remained the biggest contributor to UK insolvencies. The year ended with low sector confidence and some months seeing falls in output.

But now a month in, what about 2026 and what key issues remain in meeting the government’s target of building 1.5 million new homes by 2029? Below we outline some of the key themes shaping the sector in the coming year.

The overall outlook in Construction

Current interest rates are still relatively high at 3.75% as CPI remains at 3% above the Bank of England’s 2% target. Building Cost Information Service suggests that inflation within the construction sector is higher still.[1]  Higher costs of borrowing will preclude significant increases in capital investment by employers and inflation will see project costs rise which may result in contractors’ margins shrinking.

ONS figures show Quarter 4 of 2025 saw output drop by over 2% compared to Quarter 3, with underperformance in private new housing identified as the main negative contributor.[2] It seems unlikely that we will see a boom in 2026.

Nevertheless, most forecasters anticipate modest industry growth as opposed to a downturn. The Construction Industry Trading Board forecasts construction output will rise by an average of 2.1% per year to 2029.[3]

Key subsectors include:

• Public sector new housing: forecast average growth of 3.4% per year
• Infrastructure: slightly higher at 4.2% per year, driven by major national schemes

Projects such as the Lower Thames Crossing, HS2, and Sizewell C continue to underpin long‑term activity, supported by the government’s 10‑year infrastructure strategy, which commits £725bn of investment.

Construction insolvencies in the 12 months to November 2025 remained severe, accounting for 17% (3,950) of all UK corporate insolvencies.[4] This trend is expected to persist due, in part, to higher material and labour costs, project delivery delays and increasing reliance on two‑stage procurement, particularly for higher‑risk buildings, which can lengthen pre‑construction phases and defer payments.

We are advising clients earlier in the project lifecycle particularly at viability and risk‑profiling stages to ensure contractual mechanisms sufficiently address insolvency exposure.

Higher-risk buildings

Last year saw increased scrutiny on the performance of the Building Safety Regulator as new and existing higher-risk buildings were unable to progress due to issues with delays in the Gateway Two building control approval process.  This has meant many large-scale housing projects have struggled to get off the ground, particularly in London. However, the latest figures from the Building Safety Regulator suggest that the ‘Innovation Unit’ implemented in October 2025 to help with new higher-risk building Gateway Two applications is improving those approval times.

Further, a consultation on plans to introduce a Single Construction Regulator is currently open for responses until 20 March 2026. This consultation outlines plans to consolidate a number of regulatory functions under the remit of a Single Construction Regulator including:

• the functions of the Building Safety Regulator;
• the regulation of construction products (which currently sits within the National Regulator for Construction Products);
• creating a new regulatory framework focussing on the regulation of building professions; licensing scheme for contractors; and
• increasing and enhancing the use of data including a publicly available library of key information (such as construction product test data).

Government will be publishing its response to the consultation in summer 2026.

In anticipation of moving towards a Single Construction Regulator, the Building Safety Regulator was transferred out of the Health and Safety Executive on 27 January 2026 and became a standalone arm’s length body reporting to the Ministry of Housing, Communities and Local Government.

This transition has been made to help with reporting and governance with the hope that it further eases the operational issues the Building Safety Regulator has experienced whilst also anticipating the implementation of the new regulator (expected 2029). Only time will tell what impact, if any, the change to an arm’s length body will have to the BSR’s performance for the year ahead.

Housing

Last year government confirmed a new £39 billion Social and Affordable Homes Programme 2026-2036 (SAHP). Bidding for that programme is due to open in February 2026.

In addition, in January 2026 government also announced it is allocating an extra £3.5 million through the Council Housebuilding Support Fund for councils to draw up plans for thousands more council homes. Alongside the £5.5 million provided last year, this hopes to unlock the delivery of up to 9,800 new homes through the SAHP.[5]

Measures to increase social housebuilding and providing much needed financial funding routes should help to increase capacity to invest in existing and new homes.

Repairs and maintenance (R&M)

An overlooked trend in recent years has been the relatively good performance of R&M, particularly in the social housing sector. The Regulator for Social Housing predicts an average of £10.9bn R&M spend per annum over the next 5 years. Cladding replacement, enhanced requirements like Awaab’s Law; and preparations to meet the new Decent Homes Standard (which will apply from 2035 across both social and private rented housing) will all be factors contributing to spend in this area.

In addition, the Warm Homes Plan, announced on 21 January 2026, will directly impact R&M as it sets out an ambitious £15 billion programme to upgrade homes, cut bills and grow clean energy markets. As the largest home-upgrade investment in UK history this will significantly bolster the ability for local authorities and registered providers to retrofit their existing housing stock.

See our article on the Warm Homes Plan and key takeaways for more details. Investing in planned and responsive repairs services will therefore continue to be a key priority in 2026.

New technologies

AI dominated discussion throughout 2025, and while robotics in construction remains some way off, practical AI adoption is expanding rapidly across document classification and contract administration, programme and cost forecasting and risk and safety analytics to name a few.

The Association for Project Management’s recent report, Digital Transformation and the AI Imperative in Public and Private Sector Projects,[6] offers a detailed evidence base for how artificial intelligence and digital tools are reshaping modern project delivery. The report indicates that 61% of project professionals claim improved decision‑making as a result of AI.

In a construction context, this could lead to more reliable programme forecasting, earlier visibility of deviations and clearer insights into resourcing, sequencing and operational risk. AI’s ability to analyse large volumes of data supports proactive risk identification that is increasingly expected on large projects.

Across all sectors, 68% of respondents considered digital tools vital but in construction this figure rose to 81%, underscoring the industry’s reliance on technology to coordinate complex projects.

In construction, digital transformation is arguably no longer confined to BIM teams or innovation departments. It has the potential to affect a variety of workstreams. Successful AI adoption requires digital literacy coupled with strong interpersonal and leadership skills to guide teams through new ways of working.

Conclusion

The year ahead presents a complex but navigable landscape for the construction sector.  Economic pressures, continued insolvency risk and regulatory change continue to challenge delivery.  At the same time, the acceleration of digital tools and AI is reshaping project delivery. To explore how these developments may impact your project, please do not hesitate to get in contact with us.

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[1] Inflation within construction itself also runs higher still.

[2]https://www.ons.gov.uk/businessindustryandtrade/constructionindustry/bulletins/constructionoutputingreatbritain/december2025newordersandconstructionoutputpriceindicesoctobertodecember2025

[3]Construction Workforce Outlook | CITB

[4] Commentary – Company Insolvency Statistics December 2025 – GOV.UK

[5] Written statements – Written questions, answers and statements – UK Parliament

[6] Digital Transformation and the AI Imperative in Public and Private Sector Projects Methods and Skills for Project Management