Building costs to increase 13.1% by 2031, BCIS forecasts

The Building Cost Information Service (BCIS) has released a five-year forecast predicting that building costs will rise by 13.1% and tender prices by 15.5% by the second quarter of 2031. This outlook reflects a complex environment where inflationary pressures from energy and materials are being tempered by weak market demand, which remains the dominant force affecting the sector. These projections are critical for the construction industry as they signal a period of gradual recovery following an expected contraction in new work output during 2026.

According to the latest BCIS data, the construction industry faces a five-year period defined by rising input costs and fluctuating demand, with tender prices expected to grow by 15.5% and building costs by 13.1% by Q2 2031. BCIS chief economist David Crosthwaite noted that although energy and materials costs are driving inflationary pressure, contractors are currently limited in how much they can pass these costs on to clients due to highly competitive market conditions and weak demand. The BCIS All-in Tender Price Index (TPI) already reflected this trend in Q2 2026, showing an annual growth of 3.2% as low activity levels offset inflationary pressures on input costs.

The forecast also highlights a significant shift in new work output, which is projected to contract by 2.7% in 2026 before returning to modest growth starting in 2027. This represents a downward revision from previous estimates that predicted a 12% growth over the same five-year period. On the input side, the General Building Cost Index (GBCI) rose 1.4% between the first and second quarters of 2026, contributing to an annual growth rate of 3.8%. These figures underscore the precarious nature of the supply chain, which has been impacted by geopolitical conflicts that pushed Brent crude prices above $100 per barrel and increased costs for energy-intensive materials.

External economic factors, particularly interest rates and global trade policies, are further complicating the outlook for developers and contractors. Crosthwaite pointed out that earlier expectations for interest rate cuts in 2026 have shifted toward potential hikes, which directly impacts project viability and financing decisions in a sector where financing conditions shape development. Additionally, analysis from consultancy Arcadis suggests that tender-price inflation could rise by more than 20% by 2029 due to the combined effects of the Gulf crisis and steel tariffs. Consequently, the BCIS warns that while a recovery is expected over the forecast period, it will likely be gradual and subject to significant uncertainty.