Building costs are forecast to increase by 14% over the next five years, while tender prices are expected to rise by just over 14%, according to the latest construction forecast data from the Building Cost Information Service (BCIS).
Despite similar growth over the five years to 3Q2031, building costs are expected to rise faster than tender prices in the near term, as weak demand limits contractors’ ability to pass on higher input costs.
Total new work output is forecast to contract by 3.7% in 2026 before returning to modest growth of 2.2% in 2027. It is expected to increase by 11.4% between 2026 and 2031.
Dr David Crosthwaite, chief economist at BCIS, said: “Elevated energy and materials costs continue to put pressure on the construction supply chain, while subdued workloads keep competition for projects high. Contractors are absorbing or mitigating some cost increases to remain competitive, creating a growing gap between input cost inflation and tender price growth.
“For clients, competitive tender prices need to be considered alongside the pressures facing the supply chain. Project viability remains a key constraint, and the recovery in demand is expected to be gradual.”
The BCIS All-in Tender Price Index (TPI), which measures changes in contractors’ pricing levels in accepted tenders, increased by 0.7% between 2Q2026 and 3Q2026, resulting in annual growth of 3.2%.
The BCIS TPI Panel reported that the Middle East conflict was not yet having a significant impact on tender prices, with contractors absorbing most materials cost increases to remain competitive. However, conditions vary by sector, with sustained steel price growth affecting industrial and warehouse projects, and investment in defence and hospital construction creating capacity pressures in those markets.
BCIS forecasts annual tender price growth of 3.0% in 4Q2026 and an increase of 14.1% over the five years to 3Q2031.
On the input costs side, the BCIS General Building Cost Index (GBCI) is expected to increase by 1.6% between 2Q2026 and 3Q2026, resulting in annual growth of 4.3%.
Elevated oil and gas prices are increasing fuel and transportation costs, as well as the cost of energy-intensive materials and oil-derived products. Steel prices are also exposed to changes in tariffs and import quotas, while copper faces strong demand associated with electric vehicles, AI and related infrastructure.
Dr Crosthwaite added: “Higher energy prices also present a risk to the wider inflation outlook, raising the prospect of interest rate increases towards the end of 2026. For construction, financing costs remain central to development decisions and what clients can afford to deliver.
“Our forecast anticipates headwinds easing from mid-2027, allowing a gradual recovery. Much will depend on how long higher commodity prices persist and how far those pressures feed through the economy.”
