UK construction market continues to be global development leader

The UK construction industry employs almost one in ten of the UK’s workforce, making the market a vital part of the country’s economy.

Despite a fall in the volume of construction work in recent years, the market is expected to grow once against in 2025. This expectation is based on three main factors including the stage of the economic – in particular the interest rate – cycle, the change in government , and the continuing advances in innovation and technology.

Economic and policy indicators suggest that interest rates will continue to fall further during 2025, decreasing from 18-year highs, following the first reduction in the Bank of England base rate in around four years in August 2024, to the current 5%. This loosening of monetary policy has been driven by the sharp fall in inflation – now down to 2.2%, close to the Bank’s 2% target. The rate is expected to drop further, to 3.5%, by the end of 2025, according to International Monetary Fund forecasters.

Historically, such declines have led to an uptick in private-sector investment and expenditure, with construction often the first market to benefit from such economic upturn. However, there are a number of other factors which are also set to contribute to the industry growth.

The recent change in UK government also promises to lead to an increase in construction work, provided that the ambitious plans to build 1.5 million new homes can be made to work.

Innovation

Technology innovation is an important part of construction market growth. New developments in modular construction and off-site manufacture, for example, are set to endure. Artificial intelligence (AI) and other technological developments also continue to have an impact in terms of both methods of delivery and the types of assets and technology within them that the industry can build on.

Many UK construction companies are actively exploring and investing in what these new technologies can provide in terms of a competitive advantage. These developments will likely require new collaborative forms of contracting for development and use, as well as new drafting to address the issues such advances raise.

In the short term, this mass innovation may be a ‘disruptor’ resulting in unintended consequences. In turn, this may result in new types of disputes, requiring equally innovative resolution.

Increased use of ADR

The construction industry has always been at the forefront of developments in alternative dispute resolution (ADR). The landmark Court of Appeal ruling in the Churchill v Merthyr Tydfil CBC case, in which the court ordered a reluctant litigant to mediate, has been followed by changes to the court rules to make this more commonplace, with effect from 1 October.

We have already seen this shift starting to happen and expect the UK specialist construction court, known as the Technology and Construction Court (TCC), to be at the forefront of this move. This expectation is based on the court’s specialist judges, their expertise and recent personal experiences of how mediation often, in practice, unlocks even the most challenging construction law disputes.

Net zero

Net zero targets are a significant driver for change across all sectors. The practical efforts of the UK construction market to environmental law changes set to continue as the 2050 deadline edges closer. Serious, practical changes are required to achieve net zero, notwithstanding certain policy announcements suggesting a slight slowing of the pace in such changes.

Private finance initiative

While the private finance initiative (PFI), also known as public private partnerships, is no longer the current delivery method of choice in the UK construction market, its increased use globally means the UK remains a centre for expertise. This expertise is often called upon to advise global projects meaning that we will continue to see many issues around their operation.

Recently issues include instances where dispute resolution provisions within a PFI contract were deemed too vague and uncertain to be enforceable. The resolution of disputes in such PFI arrangements was addressed in a recent report by the Infrastructure and Projects Authority. The report called for the creation of a unique and bespoke dispute resolution forum for these PFI disputes.

However, whilst the idea has merit, it may be harder to achieve due to the many stakeholders often involved in PFI contracts and arrangements. Instead, what is likely is that these PFI projects will continue to give rise to multi-party, multi-tiered disputes, requiring specialist skills and expertise to resolve.

In addition to operational issues, many of these long-term projects are now entering their ‘hand back’ phase. This is where the longer term, for instance 25 year, ‘concession’ during which the asset, such as a hospital or road, was financed, operated and maintained by the private sector comes to an end. A PFI arrangement often contains complex provisions to value the asset before it is transferred, or ‘handed back’, to the public sector. As a result, PFI disputes will continue to feature across the UK market.

Building safety

The UK construction market will continue to feel the impact of the Building Safety Act 2022 (229 pages / 6.4 MB) and more recently the publication of the second stage Grenfell Tower inquiry findings. The Act impacts all stages of the construction process, from the initial design through to post completion disputes.

The Act gives an unprecedented 30-year retrospective limitation period for claims. As a result of this, issues around the safety of UK buildings are expected to be a driving feature of the UK construction market in the coming year.

Whilst many issues around the combustibility of cladding to high rise, residential buildings have been remedied and even litigated, many other building safety issues remain. The Act provides an updated legal framework which in turn requires changes to design, procurements, and the construction of UK buildings. This new framework is being reflected in new forms of contracts and bespoke drafting, with the courts expected to at the forefront of this area too. For example, we will see the first wave of Building Safety Act claims against the cladding system manufacturers later this year.

Internationalisation

The up-tick in the UK construction market will attract leading global designers, contractors, and specialist suppliers. The UK construction legal market is too expected to play an increasingly global role as opportunities increase in the coming year.

Latest figures from the TCC show a 38% increase in the number of applications dealt with by the court during 2022-23. One reason for this is the continued choice of English law in many international construction contracts, given its recognised predictability and underlying fairness and reasonableness. Additionally, the court is rightly recognised for its unique further degree of specialism in construction and technology cases. Whilst many other countries have specialist courts, the UK court provides reliability in line with its world leading reputation as well as cost effectiveness for parties bringing international disputes to the UK for resolution.