Input Costs

KEY INFLATIONARY DRIVERS

Inflationary pressure in the industry has rotated decisively toward labour and compliance costs, while materials remain broadly stable or easing. Contractors continue to wrestle with wage pressure, regulatory compliance, and fragile supply chain finance, even as lower tender opportunities heighten competition — limiting the degree to which these pressures can be priced into bids.

The table below summarises the key inflationary and deflationary forces currently shaping market conditions.

MATERIAL TRENDS

The UK construction materials market remains broadly stable, with prices showing minimal movement since mid-2024. Official material price data from the Department for Business and Trade (DBT) has been suspended pending a methodological review, with no releases beyond January 2025. In the interim, BCIS has produced provisional estimates replicating the former DBT indices through its own modelling. These show that overall material price inflation has been largely flat so far in 2025, with only modest increases of around 1–2% over the past year and no renewed upward trend.

Market intelligence and contractor feedback point to a supply chain operating smoothly, supported by subdued demand in private-sector building and improved logistics. Stock availability is generally good, lead times are predictable, and suppliers report little upward pressure on input costs. The principal exceptions remain specialist mechanical and electrical components — particularly transformers, switchgear, large-scale cabling and battery-storage systems — where global electrification demand and compliance testing bottlenecks continue to restrict capacity. These constraints are structural rather than cyclical, meaning relief is likely to be slow and uneven.

On the trade front, the European Commission’s proposal to halve its tariff-free steel import quota and impose a 50% tariff on out-of-quota imports has added a new variable to global steel flows. The move is expected to tighten supply and lift prices within the EU, while potentially diverting surplus steel towards the UK and other non-EU markets. For UK construction, that could mean short-term price relief but greater exposure to volatility and weakened domestic production capacity. Analysts view the near-term price effect as modest but note heightened procurement and supply-chain risk for long-lead infrastructure projects until trade conditions stabilise.

Copper has re-emerged as a potential flashpoint, with prices reaching new highs in Q4 2025. The rally has been fuelled by mine disruptions, weaker ore grades at major producers and shifting global trade flows, alongside firm demand from data centres, electrification programmes and grid modernisation. For UK construction, this is most relevant to MEP-heavy sectors, where a sustained copper rally into 2026 could reintroduce localised cost pressure for cabling and containment.

Beyond metals, the picture remains calm. Energy-intensive products such as cement, asphalt and concrete have benefited from lower power costs, stabilising producer prices even as carbon-compliance costs remain embedded. Timber, plasterboard, insulation and finishing materials are trading steadily, supported by softer housing demand and solid European supply. Aggregates and ready-mix producers report good availability and stable pricing, while freight and logistics costs have largely normalised to near pre-pandemic levels—removing one of the key volatility channels of recent years.

Current evidence points to a stable, predictable and well-functioning supply chain, with input costs mostly sideways and competition robust. The main watchpoints remain external: global tariff escalation, copper-market tightness and longer-term energy-transition equipment shortages. For now, however, the materials landscape sits in a rare equilibrium—steady, predictable and no longer the primary driver of overall tender-price movements.

LABOUR TRENDS

The construction labour market has cooled from the peak-tightness of 2022–23, but it has not fully normalised. Demand has eased in line with slower project conversion and fewer private building starts, so contractors report it is easier to fill vacancies than at any point since 2021. However, specialist resource remains stubbornly short, especially in MEP, fire and life safety and large infrastructure delivery. General labour is available - the problem is the narrow bands of high-integrity skills.

Pay data confirms a “cooler, not cheap” market. ONS shows construction average weekly earnings rising by 4.4% on a y/y three-month average to August 2025, compared with % for the economy overall — so construction pay is still high in level terms (c. £812 a week) but no longer leading national wage growth. This reflects weaker workloads rather than a surplus of skilled labour.

Summer 2025 wage rounds reinforce that message. The Construction Industry Joint Council (CIJC) and Building and Allied Trades Joint Industrial Council (BATJIC) agreed uplifts of 3.2 % and 3.6 % respectively from June 2025, well down from the 5-8 % increases agreed by some trades in 2023–24. Although these deals run ahead of current CPI forecasts, they suggest a moderating trajectory rather than runaway cost inflation — underpinning the view that labour will remain a significant input cost on specialist trades even in a flat market.

Vacancies have fallen sharply — to just under 30,000 in construction, slightly below the 10-year average, but ONS is clear this is mainly a demand effect - firms are delaying recruitment and not replacing leavers as quickly. This should not be interpreted as a resolution of the underlying skills shortage. If deferred projects progress after the Autumn Statement, vacancy pressures are likely to re-emerge from a lower base as employers once again compete for specialist labour.

Looking ahead, the structural story hasn’t changed. The Government’s £600m skills package and CITB’s 2025–29 Workforce Outlook both indicate the industry still needs more than 230,000 additional workers over the next five years, with the greatest demand in MEP, building-safety, compliance and infrastructure-delivery trades. Any sustained upswing in demand through 2026–27 is therefore likely to re-tighten labour markets, putting upward pressure on wages and sub-contractor rates as contractors seek to recover higher NICs and agreed wage uplifts within their tenders. 

ON-COSTS

Over the past three months, Main Contractor Overheads and Profit (OH&P) levels have remained largely stable across most project types, with the majority of survey respondents reporting no change. Around 77% indicated flat margins, while only 19% observed any increase. This steady picture masks some nuanced movement - several respondents noted rising fee levels on framework agreements and smaller projects, where overhead recovery has been constrained in previous cycles. A handful also highlighted selective uplifts in MEP and complex refurbishment work, linked to greater design liability and compliance obligations. Conversely, the Tier 2 market continues to exhibit softening, as firms seek to secure pipeline continuity through sharper margins and more competitive tendering.

A number of respondents remarked that OH&P levels are being held artificially low at tender stage—particularly in two-stage procurements—before being recovered through strategic package pricing and variation negotiations. Others observed that profit margins are now being protected more through risk allowances, D&B contingencies and contract terms than through declared percentage recovery. Overall, while OH&P remains static in percentage terms, competitive and commercial pressures are intensifying beneath the surface.

In contrast, preliminaries are experiencing more consistent upward movement. Nearly 35% of respondents reported an increase over the past quarter across all project values, compared with 2% seeing a decline. The main drivers are rising staff and compliance costs, including the impact of higher wage settlements, National Insurance uplifts and Building Safety Act (BSR)-related duties. Respondents also referenced ongoing increases in professional indemnity and performance-bond costs, as well as extended programme durations caused by Gateway 3 and design assurance processes.

Looking ahead, expectations remain divergent between OH&P and preliminaries. Around three-quarters (72%) of respondents expect OH&P to remain flat over the next 12 months, with just 18% anticipating an increase. By contrast, 39% foresee further upward movement in preliminaries, underlining their greater exposure to wage growth, staffing requirements and compliance overheads.

Overall, on-costs remain steady but fragile. OH&P levels are being defended through tighter commercial discipline, while preliminaries continue to edge upward as labour and regulatory pressures persist. The near-term trend suggests a stable headline position but rising embedded costs, particularly across resource-intensive and safety-regulated projects.