INPUT COSTS
A market in tension
Inflation waiting to surface
Several years of limited construction activity have weighed heavily on material producers. Input prices have generally increased more rapidly than sales volumes for some time limiting their ability to pass increased costs on, impacting margins and restricting any ability to manage any further pressures. Material cost pressures have not disappeared; they are merely waiting for their time to surface.
Construction projects have benefited from generally slow material price growth in 2025 (FIGURE 4). According to the Department of Business and Trade, producer prices saw an overall increase of 1.7% in the last 12 months, although trends among individual materials have varied.
Source: DBT/ONS/Building cost information service (BCIS)
Other global events are raising material input costs, encouraging the need to understand pricing levels and supply chains in detail. Commodities like copper have seen significant price increases over the last year, despite a recent fall in prices caused by the conflict in the Middle East. Others, such as iron ore have seen minimal annual moves, but significant volatility throughout the year.
Other inflationary impacts will affect construction material prices this year, leading to some volatility in the market. The CBAM which came into effect in January 2026, with the UK equivalent following in 2027, equalising the cost of carbon taxes across imported and domestic goods. From 1 July 2026, new steel tariffs will come into effect and tariff-free quotas will be reduced; the impact of which remains uncertain.
These material input price increases have created tension in the materials market. Costs need to increase, but demand is not sufficient to allow prices to rise.
Sales of essential mineral products (such as concrete and asphalt) have fallen in recent years (FIGURE 5), prompting the Mineral Products Association to write to the Chancellor in February 2026 imploring her to take action to boost UK construction. They shared concerns that without an increase in demand, material producers will have to make difficult decisions about whether to mothball sites and reduce output.
Source: Mineral Products Association
"CBAM marks a key shift in global climate governance, making low-carbon materials and transparent reporting essential for the construction industry. It also has the potential to add both direct and indirect cost pressures.
As CBAM becomes fully implemented, companies will need to reassess supply chains, enhance emissions reporting, and choose suppliers who can meet the new carbon data standards. Those that are early to adapt will be well positioned to succeed in a global market that increasingly values lower carbon emissions."
Richard Wilson, Associate Director
A return to volatility?
Recent developments in the Middle East have renewed attention to energy and metals. Approximately 20.0% of the global oil supply moves through the Strait of Hormuz and unrest in the region has driven Brent oil prices upwards of US$100 per barrel, as well as greater volatility in pricing. Additionally, the Middle East accounts for 9.0% of worldwide aluminum production, which has sparked concern about potential supply disruptions.
Shipping has also been pushed into the spotlight, as the events in the Middle East have diverted shipping around the Cape of Good Hope, away from the Suez Canal, a journey that takes an additional 10-14 days and attracts additional fuel and insurance costs.
However, the last few years of volatility have taught us the importance of understanding price fluctuations in the context of previous events. For example, UK natural gas prices rose from 2.885p/kWh at the end of February 2026 to 4.938p/kWh a month later. This increase of 71.0% is significant, but it remains much lower than the peak of 19.389p/kWh seen in 2022. Prices may be volatile, but the overall movement should be lower than the levels we saw in 2022. Manufacturers have faced testing times in recent months, and this next challenge can only be navigated by staying close to the market and having honest and open conversations about cost pressures.
Labour – an industry at a crossroads
Labour has been a central concern in recent quarters as a shortage of workers has driven high levels of construction wage increases, but this rate has slowed in recent quarters, suggesting a softening of the market driven by lower output levels rather than any improvement to construction’s skills crisis.
ONS data shows that weekly earnings in construction fell to £783, which is 0.1% lower than in January 2026, a stark contrast to the increase of 5.7% in January 2025. The number of live vacancies in the construction industry has fallen to 28,000, a third lower than a year earlier. These data points suggest that construction’s labour market has softened lately. In the most recent ONS Business insights survey, of companies reporting price pressures, the proportion of businesses claiming labour costs as a reason to increase prices has fallen from 53.5% in May 2025 to 31.0% in March 2026.
Source: ONS
The construction labour market is complex and has endured a skills crisis for many years. The workforce size is 11.0% smaller than its pre-pandemic level and saw a 0.9% fall year-on-year in 2025, to almost 2.1 million workers. The Industry Picture 2026 from the Construction Industry Training Board (CITB) raised several concerns: demand for workers exceeds supply; the industry has a challenge with retention; and there is increasing competition for workers as construction is not the only sector with a skills gap. It also suggested that the industry is at a crossroads; to deliver national goals, it needs to build capacity, close the skills gap and boost productivity.
These challenges are not new; the problem has been getting worse in recent years. As the uptake of people into the industry has fallen, the average age of a construction worker has increased to 42, according to the CITB. Data from the Labour Force Survey shows that the proportion of workers over the age of 50 has increased to 34.0% from 26% in 2005 suggesting a near-term retirement event, as well as a significant reduction in the 16-19 age bracket (FIGURE 7).
Source: ONS Annual population survey
Encouragingly, the landscape now seems to be changing. Apprenticeships are increasingly supported by UK firms, especially major projects. Sizewell C expects to hire 1,500 apprentices over the course of the construction period, and National Highways has commissioned skills hubs in Kent and Essex to address local training needs. This is in addition to centrally funded technical colleges and NHBC training hubs.
This change arrives at an important moment. In March 2026, the National Infrastructure and Service Transformation Authority (NISTA) updated its pipeline, which outlines over £700bn in investment across 734 projects throughout the UK, to add details about skills and workforce. According to the pipeline, there will be a workforce need of between 629,000 and 706,000 people over the next five years, covering trades, labour, professional staff, and engineers. This emphasizes the importance of skills and workforce requirements within the infrastructure pipeline and helps stakeholders across the sector to plan ahead, invest in training and development. More generally, if the overall construction pipeline recovers and puts pressure on the available construction workforce alongside this pipeline, labour availability and wages could come under renewed pressure.
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