The UK construction market has recovered from the downturn experienced between 2020 and 2023, but the growth outlook remains subdued and varied by sector, according to a new report published by consultancy McBains.

The report forecasts a gradual recovery over the next five years, with infrastructure, defence, healthcare, public sector spending and data centres expected to be the main drivers of growth, while residential and commercial development continue to face significant headwinds.

McBains predicts construction output will increase by 1.8% in 2027, rising to 2.8% in 2028 before easing to 2.3% in 2029 and 2.1% in 2030.

Despite the improving outlook, the report highlights a number of pressures still weighing on the industry. These include geopolitical uncertainty, high energy costs, volatile material prices and ongoing labour shortages.

Tender price inflation is expected to remain at a relatively moderate level of 3-4% annually over the coming years. While far lower than the sharp increases seen during and after the pandemic, McBains said inflation continues to influence project costs and procurement decisions.

The residential sector remains the industry's biggest area of concern. According to the report, affordability issues, financing costs, planning constraints and increasing regulatory requirements continue to impact development viability. Private housing output is forecast to remain flat in 2027, suggesting any recovery is likely to be slow.

Infrastructure, however, is expected to provide a stronger pipeline of work. McBains forecasts infrastructure output will grow by 14% between 2026 and 2031, supported by investment in transport, energy and digital infrastructure projects, including data centres.

The report also points to growing opportunities in retrofit and refurbishment, driven by net zero targets and increasing demand for more energy-efficient buildings across commercial, healthcare, education and social housing sectors.

Colin McCaffrey, director at McBains, said: “Looking ahead, we expect a gradual recovery rather than a rapid rebound. The divide between sectors is pronounced, with an encouraging outlook for infrastructure, defence and healthcare, which are predicted to benefit from significant investment. But due to affordability, material costs and regulation, residential remains constrained.”

Labour availability remains another major concern. Industry estimates cited by McBains suggest a further 40,000 workers a year will be needed until 2030 if the sector is to meet growth projections and deliver the government's housing ambitions.

The report echoes signs of challenging conditions in the sector as shown in the latest data from the Office for National Statistics.

Total construction output fell by 1.0% in the three months to August 2026, the second consecutive decrease in the three-monthly series. Over the three-month period, both new work and repair and maintenance fell, by 1.4% and 0.3%, respectively.

At the sector level, five out of the nine sectors fell in the three months to August 2026; the main negative contribution to the decrease was private new housing, which fell by 3.2%.

Monthly construction output is estimated to have fallen by 0.2% in August 2026; this is the fourth consecutive decrease in the monthly series, including a decrease of 0.5% in July 2026 (revised from an increase of 0.1%), and a decrease of 0.3% in June 2026 (revised from a decrease of 0.1%).

The decrease in monthly output in August 2026 came solely from a decrease in new work, which fell by 0.7%, while repair and maintenance grew by 0.4%; the main contribution to the monthly decrease in new work was private new housing, which fell by 1.9%.