Input Costs

KEY INFLATIONARY DRIVERS

Softer demand, slow project conversion and competitive pressure continue to moderate pricing across parts of the market, but the latest survey points to renewed cost risk linked to fuel, energy, shipping, imported materials and energy-intensive trades.

MEP remains the principal inflation risk, reflecting specialist labour constraints, imported equipment exposure, greater design responsibility and package complexity. Demand also remains strong across data centres, healthcare, energy, life sciences and major plant replacement programmes. Steel, façades, groundworks and civils/external works are also more exposed to the current energy and fuel shock. However, this is not a straightforward cost-led escalation cycle - general material availability is better than during the 2021–23 disruption period, softer demand is limiting pass-through in some areas, and contractors remain willing to price competitively or fix prices selectively where credible workload is available.

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

MATERIALS TRENDS

Materials inflation remains far more contained than during the extreme volatility of 2021–22, but the latest DBT data points to renewed upward movement. The ‘All Work’ construction materials price index reached 158.7 in March 2026, up 2.6% year-on-year and 0.9% month-on-month. The March increase follows a period of relative stability through much of 2025 and may capture some early energy and commodity pressure, although it is unlikely to fully reflect the later impact of the Middle East conflict. Cost pressure is likely to intensify further into April, in the next round of official data releases, particularly through fuel, energy, shipping and supplier risk allowances.

General material availability remains better than during the 2021–23 disruption period, with PMI and survey evidence pointing to only isolated pressures in areas such as steel, insulation/PIR and natural stone. Softer demand is also limiting the pass-through of higher input costs in some areas. DBT data shows notable March movements in fabricated structural steel, aggregates, imported plywood and concrete reinforcing bars, while copper and aluminium remain key watchpoints given their energy-intensive production processes and critical role in façades, curtain walling, cabling, electrical equipment and specialist MEP components.

The Middle East conflict has shifted the near-term risk profile, principally through energy and logistics channels rather than direct physical shortages of construction materials. Higher oil and gas prices feed into construction through several routes - diesel for site plant, haulage, transport, shipping and insurance, electricity and gas used in energy-intensive manufacturing as well as oil-derived products such as bitumen, plastics, insulation, sealants and waterproofing. The transmission is unlikely to be immediate or uniform. Many manufacturers purchase energy through fixed-price contracts or hedging arrangements, which can delay the pass-through of higher gas and electricity prices into factory-gate prices. However, compared with the 2022 energy shock, some suppliers appear to be reacting earlier and more defensively, through precautionary price notifications and shorter quote validity periods, before the full impact is visible in published indices.

Survey feedback supports this interpretation. Respondents reported early supplier notifications and shorter quote validity periods across steel/rebar, waterproofing, insulation, plasterboard, ductwork and MEP components. This is consistent with recent Construction Leadership Council commentary warning that the Middle East conflict has already added pressure to material costs, particularly for energy-intensive products and oil-based raw materials. However, softer workload conditions mean suppliers may not be able to pass through all cost increases in full, particularly in more competitive sectors.

The near-term outlook depends heavily on the duration of energy-market disruption, the expiry profile of manufacturer energy contracts, and whether suppliers can convert higher input costs into accepted tender pricing in a more competitive demand environment.

LABOUR TRENDS

The construction labour market has cooled materially, but this should be read as a demand-led easing rather than a structural improvement in labour supply. Softer workload, delayed starts and weaker private-sector demand have reduced immediate hiring pressure, with construction vacancies falling to 26,000 in Jan–Mar 2026, down from 43,000 a year earlier and around half the 2022 peak. This points to a more available labour market than during the acute tightness of 2021–23, but largely because firms are delaying recruitment, replacing fewer leavers and competing for a thinner flow of live work.

Pay data reinforces this shift. ONS average weekly earnings for construction fell to £801 in February 2026, down 2.1% year-on-year on a single-month basis and 0.4% lower on a three-month average. This contrasts with whole-economy earnings, which continued to rise by 3.8% on a three-month average. In short, construction wage pressure has cooled sharply and is now trailing the wider economy, reflecting softer site activity and greater spare capacity rather than an abundance of skilled labour.

G&T is seeing Tier 1 main contractor and specialist pricing remain elevated on secured pipeline work, reflecting constrained supply and continued selectivity. By contrast, the wider Tier 2 and lower-tier market is becoming more competitive as reduced workload increases appetite for new opportunities.

Survey feedback supports this picture. General labour and mid-tier subcontractor capacity appear more manageable than in the peak-tightness period, with some respondents reporting contractors actively chasing workload and teams becoming available. However, labour pressure remains highly trade- and sector-specific. MEP, electrical, public health, commissioning, façades, drylining and civils-linked roles were repeatedly identified as areas where capacity remains constrained, particularly among Tier 1 specialist subcontractors and on larger, more complex schemes.

The structural supply position remains fragile. CPA analysis indicates the UK construction workforce stood at around 2.06 million in Q4 2025, broadly flat quarter-on-quarter but 3.9% lower than a year earlier and 15% below Q1 2019. The loss is concentrated in self-employment and older, experienced workers, weakening the industry’s depth of supervision, trade knowledge and delivery resilience. This is why the market can feel soft today while still being exposed to labour-led inflation from constrained supply once activity recovers.

Several respondents noted that labour looks manageable while starts are subdued, but could tighten quickly if delayed schemes move forward together. CITB’s latest workforce outlook still points to a need for around 239,000 additional workers over 2025–2029, underlining the scale of the challenge. The bottom line is the market has gained breathing space, not a bigger labour pool.

ON-COSTS

Commercial on-costs are sending a more divided signal than materials or labour. Main contractor OH&P remains largely steady, while preliminaries continue to show firmer upward movement. In Q2 2026, 81.2% of survey responses reported no change in OH&P over the past three months, with only 16.8% reporting an increase and 2.0% a decrease. That is little changed from Q1 and reinforces the view that, in a competitive market, contractors are still finding it difficult to expand headline margin allowances on a broad basis.

Preliminaries present a different picture. In Q2 2026, 38.7% of responses reported an increase in preliminaries over the past three months, compared with 60.7% reporting no change and only 0.6% reporting a reduction. This continues the pattern seen over recent quarters and confirms that preliminaries remain the more active area of cost movement. Survey commentary suggests that the main drivers are higher site staff costs, recruitment challenges in commercial and QS roles, longer programmes, compliance and assurance requirements, together with higher running costs for site operations, including fuel and energy-related items.

The forward-looking responses strengthen this distinction. Over the next 12 months, 76.7% of respondents expect OH&P to remain unchanged, with 16.5% expecting an increase and 6.8% a decline. By contrast, 51.5% expect preliminaries to rise, versus 44.7% expecting no change. This is a stronger inflation signal than in previous quarters and suggests that even if contractors struggle to move headline OH&P materially, they still expect upward pressure in the cost of project delivery and management.

The broader implication is that commercial uplift is increasingly appearing around the margin line rather than directly in it. In other words, OH&P percentages may remain outwardly stable, but recovery is still being sought through preliminaries, package pricing, labour allowances and risk provisions. As a result, the headline margin position looks relatively flat, but underlying on-cost pressure has not gone away, it has simply shifted into less visible parts of the tender build-up.