Construction tender prices are set to rise by up to 5.0% this year, threatening costs for key UK programmes and challenging project viability, according to new data from global professional services company Turner & Townsend.
In its Winter 2025 UK Market Intelligence report (UKMI), the business forecasts a rate of tender price inflation (TPI) of 3.5% per year across real estate and 5.0% for infrastructure through 2026 and 2027. While these both represent only a modest 0.5 percentage point lift from the TPI rates experienced last year, sustained cost escalation is putting pressure on the viability of new projects at a time of economic uncertainty.
Construction output remains subdued, at its lowest slump since the financial crisis according to the latest figures from the S&P Global UK Construction Purchasing Managers’ Index. However, the sector is seeing a fresh wave of demand as government plans for growth through the modern industrial strategy spur on renewed confidence in logistics, manufacturing and office development. Orders of new work made to construction firms were up by 29.3% in the year from Q3 2024, the fastest increase since the easing of pandemic lockdowns.
The report points to a risk of the TPI rate accelerating further, as the government’s Planning and Infrastructure Act seeks to speed up project starts, further boosting demand, and as Labour’s missions jostle for resource. Against this backdrop, and with the sector losing workers at an alarming rate – some 50,000 in the past year, according to ONS – Turner & Townsend warns that capacity constraints and continued market uncertainty are threatening delivery.
James Darrie, Strategic Lead for Scotland at Turner & Townsend, said: “In Scotland, the pressures highlighted in our latest UK Market Intelligence are being felt acutely across both public and private programmes. While demand remains strong, particularly across energy, infrastructure and public assets, constrained capacity, skills shortages and continued inflationary pressure are already testing viability. At the same time, there is a growing need for clients to be more realistic about risk allocation; contractors are no longer willing or able to absorb all risk in an increasingly volatile market. With a significant pipeline of major projects coming forward, the focus must be on early engagement with supply chains, realistic cost planning, equitable risk-sharing and robust delivery strategies to ensure Scotland can convert ambition into projects that are deliverable and economically sound.”