The UK construction sector is showing signs of resilience in 2025, but the road ahead is far from smooth. According to the latest ICAEW Business Confidence Monitor (Q2 2025), construction businesses are cautiously optimistic, even as they navigate a complex mix of economic pressures and policy uncertainty.
From developers and contractors to consultants and planners, this report offers valuable insights to professionals across the construction sector into where the sector is heading and what that means for strategic decision-making.
Confidence returns, driven by demand and policy support
The construction sector’s Business Confidence Index rose to +7.8 in Q1 and held at +4.7 in Q2. This is well above the UK average of -4.2.
This rebound is underpinned by:
- Strong domestic sales: Construction firms reported the highest annual domestic sales growth across all sectors, reflecting robust demand in housing and infrastructure.
- Government housing pledges: Renewed commitments to housebuilding are boosting sentiment and unlocking new project pipelines.
- Easing input costs: Inflationary pressures are beginning to ease, with firms expecting further reductions in input prices over the next 12 months.
- Employment growth: Hiring is on the rise, suggesting that businesses are preparing for increased activity.
These trends point to a sector that is regaining momentum, particularly in residential development and public infrastructure. These are two areas that are central to the UK’s long-term growth strategy.
Challenges that could undermine progress
Despite the positive outlook, several structural challenges remain that could limit the sector’s ability to scale and innovate:
- Tax burden at a record high: 72% of construction firms now cite tax as a growing concern - the highest across all sectors and a new record for the survey. With the Autumn Budget approaching, uncertainty around fiscal policy could impact investment decisions and project viability.
- Skills shortages: Labour availability remains a critical constraint. Even as employment rises, the lack of skilled workers continues to delay projects and inflate costs.
- Stagnant R&D investment: Innovation remains underfunded. R&D budgets have shown no growth (the lowest since 2012), raising concerns about the sector’s ability to modernise and improve productivity.
What this means for construction professionals
For those working in or alongside the construction sector, the message is clear: while confidence is returning, it must be matched with strategic action.
This calls for the following actions:
- Plan for policy volatility: Stay ahead of potential tax and regulatory changes that could affect project economics.
- Invest in skills and training: Address labour shortages by supporting apprenticeships, upskilling and workforce retention.
- Prioritise innovation: Adopt digital tools and sustainable construction methods to future-proof operations.
Let’s continue the conversation
How is your organisation responding to these trends? Are you seeing similar patterns on the ground? I’d love to hear your perspective and explore how we can navigate the opportunities and challenges ahead.
The next step
Learn more about our property specialism here. Please get in touch with Jessica Moorghen or your usual UHY property adviser if you have any enquiries regarding the above.
