Building costs are forecast to increase by 13.1% over the next five years, while tender prices are expected to rise by 15.5%, according to the latest construction forecast from the Building Cost Information Service (BCIS).

The report predicts total new construction output will contract by 2.7% during 2026 before returning to modest growth from 2027 onwards, as the sector continues to balance rising input costs against subdued demand.

The BCIS All-in Tender Price Index, which measures contractors' pricing on accepted tenders, recorded annual growth of 3.2% in Q2 2026. Meanwhile, the General Building Cost Index rose by 3.8% year-on-year, with higher energy and material costs continuing to put pressure on the supply chain.

Dr David Crosthwaite, Chief Economist at BCIS, said: “Rising energy and materials costs are creating renewed inflationary pressure across the construction supply chain, but weak demand remains the dominant force in the market.

“Contractors continue to face competitive conditions, limiting the extent to which higher costs can be reflected in tender prices. Although activity is expected to recover over the forecast period, the recovery is likely to be gradual, with significant uncertainty remaining around both costs and demand.”

BCIS said expectations for interest rates have also shifted considerably during 2026, with markets moving from anticipating two rate cuts at the start of the year to the possibility of further increases. The organisation said higher financing costs continue to influence development viability and investment decisions, adding to the uncertainty facing the construction sector despite expectations of a gradual recovery from 2027.