Construction firms are bracing for another bout of price inflation as high oil prices, steel tariffs and carbon taxes combine to push up project costs over the next two years.
Consultant Arcadis has increased the upper end of its previously already high tender price inflation forecasts for 2026 and 2027 by one percentage point to reflect the risk of Gulf-driven inflation following the recent Iran conflict.
The biggest pain is expected to hit infrastructure projects, where higher oil prices feed directly into the cost of plant, machinery, transport and energy-intensive materials such as steel.
Brent crude remains around 8%-10% above pre-conflict levels and Arcadis warned that sustained energy price increases could trigger another round of cost escalation across civil engineering work.
| Arcadis tender price forecast |
| Year |
Private Sector |
Public Sector |
National Civils |
National Network |
| 2026 |
1–4% |
2–5% |
3–6% |
3–8% |
| 2027 |
2.5–4% |
3.5–6% |
2.5–6% |
4.5–8% |
| 2028 |
3–5% |
4–5% |
4–6% |
5–8% |
| 2029 |
4–5% |
5–6% |
5–6% |
5–8% |
| Total |
10.5–18% |
14.5–22% |
14.5–24% |
17.5–32% |
The consultant also warned that new steel quotas and tariffs from 1 July will establish a higher price floor for construction steel products.
It estimates the additional 25% tariff will add £75-£150/t to steel costs and could leave some imported material up to £300/t more expensive than tariff-free supplies.
Further price rises are coming in January when the UK’s Carbon Border Adjustment Mechanism takes effect. Based on experience in Ireland, Arcadis expects the measure to increase rebar prices by around 7%, add 3%-4% to flat steel products and push cement prices up by 10%-15%.
Despite these mounting pressures, building contractors are largely keeping a lid on tender inflation by absorbing cost increases to secure work in an increasingly competitive market.
Arcadis said the industry is benefiting from spare capacity and subdued demand, with new-build output down 6% in the first quarter compared with a year ago.
But it warned that the current situation may not be sustainable.
Simon Rawlinson, Head of Strategic Research and Insight, Arcadis, said in the report: “The market might be awash with inflationary pressures, but the slack in construction markets is helping hold back the dam.”
He added that the ability of contractors to continue absorbing costs will depend heavily on how quickly geopolitical tensions ease and whether wider economic conditions deteriorate further.
“The UK construction sector is navigating a highly uncertain landscape, as inflation, energy volatility, and regulatory change converge. Contractors and clients are demonstrating resilience, but sustained recovery will depend on prompt government action and continued reform.
“The outlook remains cautious as the industry adapts to new risks and prepares for further change.”
Construction consultant Currie & Brown has also warned construction materials, including steel, copper and aluminium are set to see higher price inflation.
It warns the biggest impact will be on projects with high structural, mechanical and electrical requirements, including data centres, advanced manufacturing facilities and major infrastructure, the key growth markets for construction.
In the hotel and data centre markets, it predicts project cost inflation of between 3% and 7% by the end of this year.
Construction firms are bracing for another bout of price inflation as high oil prices, steel tariffs and carbon taxes combine to push up project costs over the next two years.
Consultant Arcadis has increased the upper end of its previously already high tender price inflation forecasts for 2026 and 2027 by one percentage point to reflect the risk of Gulf-driven inflation following the recent Iran conflict.
The biggest pain is expected to hit infrastructure projects, where higher oil prices feed directly into the cost of plant, machinery, transport and energy-intensive materials such as steel.
Brent crude remains around 8%-10% above pre-conflict levels and Arcadis warned that sustained energy price increases could trigger another round of cost escalation across civil engineering work.
| Arcadis tender price forecast |
| Year |
Private Sector |
Public Sector |
National Civils |
National Network |
| 2026 |
1–4% |
2–5% |
3–6% |
3–8% |
| 2027 |
2.5–4% |
3.5–6% |
2.5–6% |
4.5–8% |
| 2028 |
3–5% |
4–5% |
4–6% |
5–8% |
| 2029 |
4–5% |
5–6% |
5–6% |
5–8% |
| Total |
10.5–18% |
14.5–22% |
14.5–24% |
17.5–32% |
The consultant also warned that new steel quotas and tariffs from 1 July will establish a higher price floor for construction steel products.
It estimates the additional 25% tariff will add £75-£150/t to steel costs and could leave some imported material up to £300/t more expensive than tariff-free supplies.
Further price rises are coming in January when the UK’s Carbon Border Adjustment Mechanism takes effect. Based on experience in Ireland, Arcadis expects the measure to increase rebar prices by around 7%, add 3%-4% to flat steel products and push cement prices up by 10%-15%.
Despite these mounting pressures, building contractors are largely keeping a lid on tender inflation by absorbing cost increases to secure work in an increasingly competitive market.
Arcadis said the industry is benefiting from spare capacity and subdued demand, with new-build output down 6% in the first quarter compared with a year ago.
But it warned that the current situation may not be sustainable.
Simon Rawlinson, Head of Strategic Research and Insight, Arcadis, said in the report: “The market might be awash with inflationary pressures, but the slack in construction markets is helping hold back the dam.”
He added that the ability of contractors to continue absorbing costs will depend heavily on how quickly geopolitical tensions ease and whether wider economic conditions deteriorate further.
“The UK construction sector is navigating a highly uncertain landscape, as inflation, energy volatility, and regulatory change converge. Contractors and clients are demonstrating resilience, but sustained recovery will depend on prompt government action and continued reform.
“The outlook remains cautious as the industry adapts to new risks and prepares for further change.”
Construction consultant Currie & Brown has also warned construction materials, including steel, copper and aluminium are set to see higher price inflation.
It warns the biggest impact will be on projects with high structural, mechanical and electrical requirements, including data centres, advanced manufacturing facilities and major infrastructure, the key growth markets for construction.
In the hotel and data centre markets, it predicts project cost inflation of between 3% and 7% by the end of this year.
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