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Construction Intelligence Report Q1 2025

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Intelligence Report for Q1 2025, Tender Price Inflation forecast increases for construction sector

AtkinsRéalis has published its Construction Intelligence Report for Q1 2025, with a range of analysis and insight into the sector.

Here Max Wilkes, Associate Director for project and programme services and report author, writes that increased taxes and pressures on the supply chain are leading to rising TPI* (Tender Price Inflation) in the construction sector.

As predicted in our last report the effect of tax increases has reduced confidence and compressed tendering opportunities leading to competitive tendering in 2024 and the first half of 2025.

The lack of confidence in the industry highlights many of the problems we face. With no visibility of work there is no incentive to invest in new technologies, or training, in order to keep margins as low as possible to win work, yet this keeps productivity low and build costs high.

It begs the question, with falling numbers employed in the industry and the age demographic showing worrying signs of increasing age, does the highly fragmented industry have the capability to train new workers and provide the increasing green collar workers we need?

Inflationary pressures will arise from increased demand to source materials and labour from promised investment amid disrupted and constrained material and labour supply chains. Increased national insurance contributions, regulations and levies aimed at achieving net zero – Future Homes, Carbon Border Adjustment Mechanism will filter through starting this year leading to tender inflation.

The increase in national insurance, among other tax rises announced in the November budget, leading some developers to cast doubt on the viability of certain schemes. There is also a risk that companies will put off much-needed investment in training and technology as a result of the tax increases – both of which are seen as essential drivers for growth in the sector.

However, despite these concerns investment in the sector remains strong, and the government’s budget announcement of an additional £100bn in spending, coupled with planning system reform, will have a positive impact on property and infrastructure development.

The report also points to the National Infrastructure and Construction Pipeline’s (NICP) planned investment of £164bn between 2023 and 2025 - underscoring the UK’s dedication to enhancing its infrastructure landscape with a focus on energy, transport and utilities.

As a result of this mixed picture, amidst other factors, the AtkinsRéalis’ TPI forecast this quarter has been raised from 3% in Q4 last year to 3.5% in Q1 2025.
 
But overall, while the UK construction sector faces challenges such as labour shortages and rising costs, the outlook remains positive with potential for growth driven by technology increasing productivity, government investment, and a focus on sustainability.

Read the Construction Intelligence Report Q1 2025
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