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Report from
Europe
UK construction activity forecast to contract 2.5% in
2026
Conflict in the Middle East and its impacts on the UK
economy and building industry are expected to hit
construction activity over the next 12-18 months according
to the UK Construction Products Association (CPA).
In its Spring 2026 Forecasts it says that the second half of
the year will see a drop in construction demand and sharp
cost increases, especially in the two largest sectors, private
housing and private housing repair, maintenance and
improvement (RMI). Construction output overall is now
expected to fall by 2.5% in 2026. It is still predicted to
grow by 1.2% in 2027, but the CPA cautions this forecast
is subject to significant downside risks.
At the end of 2025, there was cautious optimism in UK
construction. Heavy rain affected activity early in the
New Year, but there were signs that better weather in
March and April would lead to improvement. However,
war in the Middle East changed the outlook, with building
now expected to be one of the UK’s worst affected
industries by the conflict.
“Even if there was a resolution to the conflict the day of
these forecasts being published, a degree of permanent
damage would be done to oil production, shipping
channels and additional global uncertainty and risk would
be priced in. This is likely to lead to a spike in Consumer
Price Index inflation across the economy and construction
product price inflation due to oil, energy and input cost
rises,” says the CPA.
Privately funded construction sectors are likely to be the
worst affected by cost increases, it maintains. They are
also expected to be hit by increases in mortgage and
financing costs. In addition, house builders face
continuing sharp cost rises.
SME companies are expected to be the hardest hit by this
as they have less ability to plan and purchase in advance.
Overall, the CPA forecasts the private housing sector will
contract by 7.0% in 2026, with 114,801 houses completed,
compared with 122,129 in 2025. Growth will be
negligible, 0.7%, in 2027, then rise to 2.2% in 2028
Private housing RMI was described as subdued in 2025,
with growth of just 1.2% and the sector worth £38.1
billion. Now, there are added brakes on activity, namely
the prospect of more interest rate raises and geopolitical
uncertainty.
The fall in demand may be partially offset by homeowners
investing in energy security and energy efficiency but that
could also be constrained by the ending of government
programmes supporting energy-related work. The CPA
consequently predicts private RMI output to fall by 8.0%
in 2026 to £35 billion and flatline in 2027, before growing
3% in 2028.
The CPA reports that the public house construction sector
has been adversely affected in the near term by
deteriorating conditions in building overall. Also, only
60% of housing completions under the SAHP will be for
social rent. This leaves a large proportion of development
reliant on other forms of tenure, which are subject to
mortgage rises and falling customer confidence.
“Elevated uncertainty means there are likely to be delays
to schemes being planned now, especially as viability may
worsen if there is a lengthy period of inflation and
passthrough from high oil and energy prices,” says the
CPA Forecasts.
Its conclusion is that public sector housing output will
contract 4% in 2026 to £8.9 billion, then grow 2% in 2027
and 6% in 2028.
Changing work patterns, with more UK employees
working from home at least part of the time, is causing
caution over construction of new offices and affecting
overall commercial building output, which was worth
£24.1 billion in 2025. Rising costs, the Middle East
conflict and increasing financing costs add to the
uncertainty and the CPA expects commercial construction
to shrink 3.7% in 2026 before growing 0.5% in 2027.
A continuing concern for the future of UK building, says
the CPA, is availability of labour, and due to an aging
workforce, the loss of construction skills in particular. It
points out that the majority of loss of skilled workers since
2018 has been in the 50–64-year-old age group.
Commenting on the CPA Spring Forecasts, Head of
Construction Research, Rebecca Larkin, said: “At the start
of this year, there was a degree of cautious optimism over
the outlook for construction activity in 2026 and 2027.
However, this has been replaced by stark concerns over
global factors and oil and industrial energy cost rises,
leading to a spike in inflation. The direct impact on
construction will be double-digit construction product
price inflation, especially in oil-based and energy-
intensive products. Increases in inflation across the
economy will also hit confidence and spending or
investment by homebuyers, homeowners, businesses,
clients and investors.”
Risks to the forecasts are heavily skewed to the downside,
she said, given uncertainty over the extent of cost rises
and their impacts on confidence. However, there are
potential upside risks if the government provides stimulus
for house building and home improvement. The CPA,
she added, assumes four months of disruption from the
Middle East conflict due to spikes in oil prices, with
‘lagged impacts over the next 12-18 months that culminate
in an overall decline in construction activity’.
See - https://www.constructionproducts.org.uk/news-media-
events/news/2026/may/cpa-releases-spring-forecast/
European construction in slow recovery
The outlook for the European construction sector remains
cautiously positive, but growth is forecast to be slower
than previously expected. This is the verdict of
Euroconstruct’s latest forecast, as unveiled at its 101st
Conference held in Finland early June .
The organisation’s states that, since the its last forecast in
November 2025, the operating environment for
construction has changed in many ways.
“War in Iran and the situation in the Strait of Hormuz has
a significant impact on the global economy, energy prices,
inflation and interest rate trends – all factors that weigh
heavily on demand in the construction sector,” it said.
“Consumer and business confidence in the future has
fallen, and economic forecasts have been revised
downwards in several countries over the spring. It is likely
that this uncertainty will continue.”
“Growth in 2026 will remain weaker than previously
estimated, at 1.1%,” stated the report. “In 2027, it is set to
be 1.3%. However, none of the EC-19 countries is
forecasting negative economic growth.”
Total construction output in the EC-19 countries grew by
just 0.2% in 2025, a down from the 0.3% predicted in
Euroconstruct’s November 2025 forecast. “In 2026,
construction is forecast to grow by 2.0%, whereas six
months ago the expectation was 2.4%,” it said. “The
growth forecasts for 2027 and 2028 remain unchanged at
2.2% and 1.9% respectively.”
The various sectors of construction in Euroconstruct
countries developed very differently between 2023 and
2025. Residential output reduced sharply, non-residential
construction remained unchanged overall, while civil
engineering grew. During the forecast period of 2026–
2028, all sectors are expected to grow.
From 2026–2028, the output of new building construction
is expected to grow faster than building renovation. The
strongest growth in construction between 2025 and 2028 is
forecast for Ireland, Poland, the UK and Portugal. Growth
is weakest in Slovakia, Italy and Belgium.
“Ireland continues to stand out as the fastest-growing
market, thanks to strong public investment and steady
demand,” states Euroconstruct. “Poland is also benefiting
from strong medium-term growth, although forecasts have
been revised slightly downward.
Spain and Portugal, in turn, are benefiting from broad-
based growth in both building construction and civil
engineering. Germany, France, Austria and Italy continue
to suffer from weak housing demand, high costs and
limited financing.”
See - https://euroconstruct.org/conference/101st-euroconstruct-
conference/
EU building sector must recruit and train - European
Construction Observatory
If all EU investment targets for the next five years and
beyond are met, including in increasing the energy
efficiency of buildings, its construction sector will need
around 3.6 million more workers by 2030. That is a 20%
increase on the current total workforce and will require a
major step up in recruitment. This is the forecast in the
recently published Analytical Report on Skills from the
European Construction Observatory.
Following the pandemic, says the report, the construction
sector recovered to levels well above those before the
health crisis. The EU building sector workforce involved
directly in construction reached 13.8 million. Another 2.8
million people were employed in the architectural,
engineering and testing services sectors, so the
construction sector accounted for 8.4% of the EU
workforce.
However, since then recruitment has failed to keep up with
the loss or workers to retirement. The workforce
continues to age significantly. In 2024 31% comprised
people aged 50-64, up from 27% in 2015, and this age
group accounted for over 70% of construction workforce
growth in the intervening 10 years. Consequently, the
building sector is suffering from a deepening labour
shortage.
The report highlights that micro-enterprises continue to
dominate EU construction. In 2022, 94% of construction
companies had nine or fewer employees.
Other issues include a decline in graduate recruitment,
with a fall of 9.2% fewer upper secondary level employees
in the industry in 2024 than in 2015 and 25% fewer at
bachelor level. There are variations in graduate
employment across the EU, but only seven countries have
seen an increase.
There is also low participation in education and training.
In 2023, 10% of construction employees participated in
education and training, compared to 17% in the wider
economy.
The gap has grown by 3 percentage points since the
pandemic. Also, in 2015 69% of construction businesses
offered continuous education and training. In 2020 that
was down to 64%.
In this context, says the report, support for more education
and training ‘remains essential’.
“In conclusion,” states the report executive summary,
“ensuring a strong skills base will be essential for the
sector to keep up with evolving site and project
requirements. This means training, attracting and retaining
construction workers, including those from diverse
demographics and across longer working careers.”
See - https://single-market-
economy.ec.europa.eu/document/download/6b3496d2-8534-
4ab9-811c-d0bc338aec52_en?filename=ECO-analytical-skills-
151225-FINAL-amend-230126.pdf
European ministers urged to strengthen sustainable
forest management
A range of European timber and related industry bodies
sent a joint statement to decision makers ahead of the tenth
Forest Europe Ministerial Conference highlighting the
value of the sector in terms of its supply of valuable
products and raw material and the climate benefits of
forestry and timber use. The ten bodies affirmed their
support for Sustainable Forest Management (SFM) as the
cornerstone of Europe’s forest policy.
Addressing Ministers at the Forest Europe Conference the
signatories said that at a time when Europe seeks to
strengthen its competitiveness, climate resilience and
bioeconomy, sustainably managed forests provide far
more than environmental benefits. The statement said the
timber and forest sectors supply renewable raw materials
that underpin thousands of companies, millions of jobs and
entire rural communities across Europe.
“Without a predictable and sustainable supply of wood
and wood fibres, Europe cannot deliver on its climate,
biodiversity, housing, circular economy and bioeconomy
ambitions,” they added. The statement said that ‘as climate
change increases pressure on forests, active and adaptive
forest management becomes more important than ever’.
“The signatory organisations therefore call on Forest
Europe and European policymakers to continue
strengthening sustainable forest management, support
active forest stewardship, and ensure that forest owners
and managers can maintain the sustainable mobilisation of
wood resources, “it stated. “Securing the availability of
renewable forest raw materials must remain a central pillar
of Europe’s forest, climate and bioeconomy policies.”
“After several decades, the sustainable forest management
concept remains fully fit for purpose, yet further
improvement of its foundations in Europe is more
important than ever,” it said. “This is why possible
adaptations and developments of management criteria,
indicators and other tools should continue to be analysed
and explored.
Forest Europe is the right forum where this work should
continue, as Forest Europe is and should remain the main
European forest policy forum.”
The statement signatories are the European Confederation
of the Woodworking Industries, the Confederation of
European Forest Owners, Confederation of European
Paper Industries, European Farmers and Agri-
Cooperatives, the European Landowners' Organization, the
European Organisation of the Sawmill Industries, the
European State Forest Association, the European
Federation of Municipality Forests, the Union of European
Foresters and Union of Foresters of Southern Europe.
See: https://www.cei-
bois.org/_files/ugd/5b1bdc_2d85af84cdc643b8ac504e5dbcb8b5c
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