UK construction returns to growth as public investment underpins recovery

• UK construction returned to real output growth of c.1.1% in 2025 after two years of contraction, underpinned by public investment and industrial strategy priorities

• Public non‑residential construction grew by over 18% in 2025, with government‑funded health and education projects providing the main source of sector resilience

• Infrastructure growth is forecast to accelerate through the 2026–2028 outlook period, led by sustained investment in energy and water 

• Industrial construction was a standout performer in 2025, with output rising by around 19% (£11 billion), reflecting UK industrial strategy priorities across energy transition, defence and advanced manufacturing

PwC’s latest Construction and Housebuilding Outlook shows that the UK construction sector returned to modest growth of around 1.1% in 2025 after two years of contraction, although the recovery remains uneven across markets and regions. Growth has been underpinned by public investment and industrial strategy priorities, with activity increasingly concentrated in public non‑residential and infrastructure segments.

This uneven recovery reflects differing regional exposure to public investment, infrastructure, and industrial activity. Stronger momentum is evident in areas linked to energy, defence, advanced manufacturing and life sciences, including established clusters around Cambridge, London and Oxford, as well as parts of the Midlands and North East; while regions more reliant on private housing, offices and retail continue to recover more slowly.

Now in its sixth edition, the Outlook reviews sector performance in 2025 and provides a forward‑looking assessment of construction activity and spend across the 2026–2028 period. 

Infrastructure is expected to become the primary engine of growth over the outlook period, with accelerating investment in energy and water set to offset more constrained transport activity. This is underpinned by record levels of regulated investment, including tens of billions of pounds committed to electricity networks and a £100 billion‑plus multi‑year programme across the water sector. Together, major long‑term programmes across nuclear, electricity networks and water infrastructure continue to anchor the forward pipeline, reinforcing the sector’s strategic role in supporting decarbonisation, resilience and long‑term economic objectives.

Public sector delivery, particularly in health and education, played a critical role in supporting activity in 2025, helping to offset continued weakness in private housing and commercial markets. As a result, public non‑residential construction emerged as the strongest‑performing segment, expanding by over 18% in 2025. This performance reflects accelerated delivery across health and education programmes and highlights how government‑backed and regulated investment is now structurally underpinning activity rather than simply supporting the sector’s margins.

Industrial construction was a standout performer in 2025, reflecting structural trends aligned to the UK’s industrial strategy. Output rose by around 19% to approximately £11 billion, driven by sustained investment in energy transition, defence and advanced manufacturing, alongside continued capital commitments to digital infrastructure. Heightened geopolitical uncertainty is also reinforcing demand in defence‑related construction and domestic manufacturing capacity, while exposing ongoing vulnerabilities across global supply chains. 

Commercial construction remains subdued, with offices and retail acting as a drag on activity. Development is increasingly focused on prime, energy‑efficient space, while refurbishment and upgrade work is being prioritised over new build activity. 

Data centre development continues to attract substantial capital commitments, reflecting sustained demand from digital infrastructure and AI‑driven growth. However, grid capacity constraints and connection delays are expected to limit near‑term delivery, with larger‑scale acceleration more likely toward the latter part of the forecast period.

Residential construction stabilised during the year but continues to face affordability pressures, planning delays, regulatory complexity and elevated build costs. While easing financial conditions improve the medium‑term outlook, the pace of recovery is expected to remain measured, particularly in public housing where financial pressures and competing demands on capital continue to weigh on new development. 

Overall, PwC’s outlook points to a construction market that is growing but increasingly selective in nature. Government priorities and the Industrial Strategy are shaping where activity is concentrated, while execution and delivery capability will determine how effectively investment is translated into on‑site activity over the coming years.

Cara Haffey, Partner and Leader of Industrials & Services at PwC UK, said:

“It is encouraging to see the construction sector return to growth despite ongoing economic and delivery pressures. Commitments set out in last autumn’s Budget have reinforced the importance of infrastructure, energy and defence investment, providing greater visibility around the medium‑term pipeline and underlining the sector’s strategic role in supporting economic resilience.

“The pressure is still on, and the sector will have many fiscal constraints to deal with, but the emphasis on long‑term capital investment and industrial priorities has created a clearer direction of travel for the sector. There is opportunity in the sector, the next step is translating funding commitments into deliverable projects. Disciplined capital allocation and delivery capability have now become as important as the scale of investment itself.”

Sam Edwards, Director, Industrials & Services at PwC UK, said:

“Our analysis shows that the construction sector is slowly emerging from a period of contraction, however, recovery remains uneven across the sector. Public investment is really making a difference, with public non‑residential and infrastructure activity currently providing the strongest momentum. Areas such as private housing and commercial construction are seeing a slower pace of recovery. 

“The pace at which funding allocations convert into deliverable, on‑site projects will be critical to the growth of the construction sector, particularly given ongoing constraints around planning, skills and grid capacity. Looking ahead, infrastructure investments in energy and water are anticipated to play a significant role in supporting broader economic goals. Businesses that prioritise disciplined project selection, early engagement on planning and operational readiness will be best placed to capture growth as programmes scale."

The outlook reflects conditions at the time of publication, with ongoing economic and geopolitical uncertainty continuing to shape costs, supply chains and delivery dynamics across the sector. All forecast figures remain subject to change and are presented at 2025 constant prices.

Notes to Editors: 

About the Construction and Housebuilding Outlook: PwC’s Construction and Housebuilding Outlook is published twice a year and provides a quantified assessment of UK construction sector performance. The latest edition reviews market performance in 2025 and sets out PwC’s outlook for construction activity and spend across the 2026–2028 period.

Methodology: The outlook is triangulated using publicly available data, third‑party research and PwC’s regular engagement across the built environment value chain.

Forecast assumptions: All forecast figures are subject to change and are presented at 2025 constant prices.

Next publication: The next edition of PwC’s Construction and Housebuilding Outlook will be published in Q3 2026.