GDP data shows construction had its worst performance in four years in the UK as experts explained “it’s been battling a perfect storm”.
The UK economy grew in the fourth quarter of last year, but only just by 0.1%, according to official data published this morning.
Real gross domestic product (GDP) is estimated to be 1% higher in Quarter 4 2025, compared with the same quarter a year ago.
The figures for construction are particularly worrying – in Q4, it contracted by 2.1% and by 0.5% in December 2025.
ONS director of economic statistics, Liz McKeown, said: “Construction registered its worst performance in more than four years.”
Construction costs are at record highs
Zaman Sheikh, Director at Northwood Chelmsford, explained why construction was struggling.
He said: “Construction costs are currently at record highs, putting significant pressure on the sector. In recent years, permitted development rights allowed office buildings to be converted into flats without full planning permission.
“While this unlocked supply, it has also led to a glut of flats in some areas, often launched at premium prices that are now hitting affordability ceilings. High service charges have added to the strain, and the situation is compounded by more flats coming to market as landlords exit.
“At the same time, some lenders have reduced their appetite for funding permitted development conversions, creating additional uncertainty for developers and buyers alike. Developers are now navigating a complex mix of rising construction costs, tighter finance conditions, elevated interest rates, planning delays and localised oversupply — all of which are squeezing profit margins.”
It’s been battling a perfect storm
Craig Fish, Director at London-based Lodestone Mortgages, said he isn’t surprised by the figures.
He added: “Construction’s decline is no surprise, it’s been battling a perfect storm. Borrowing costs, while improving, remain a brake on developer activity. Material costs are still elevated and chronic labour shortages show no signs of easing. But perhaps the biggest killer is confidence, or the total lack of it.
“When builders can’t see a clear path to profitability, spades stay in the ground. As for the government’s 1.5 million housing target, the numbers simply don’t stack up. With construction contracting 2.1% in Q4 and 0.5% in December, the sector is moving in entirely the wrong direction. You cannot build your way out of a housing crisis with a shrinking construction industry.
“The target was always ambitious. Right now it looks increasingly detached from reality. Yes, property prices have eased slightly and rate improvements are welcome, but they’re nowhere near enough to unlock the development pipeline we desperately need. Bold targets mean nothing without the conditions to deliver them.”
Kelsey Phillips, Head of Specialist Lending at Arose Finance, said she is seeing developers struggle.
She continued: “Almost all of our small and medium enterprise (SME) developer clients are under real pressure. Build costs remain structurally high, land prices have been slow to correct and collapsing Gross Development Values (GDVs) have materially eroded margins.
“First-time buyers (FTBs) are the backbone of the UK housing market. Even if they are not purchasing developer stock directly, FTBs mobilise the entire housing chain by crystallising equity for home movers. In the absence of materially lower interest rates, the most immediate lever available to our government is demand support.
No hard hat is going to save Reeves and Starmer
“Replacing the first-time buyer schemes that have now ceased would provide targeted stimulus to GDVs, supporting UK developers and returning viability to our construction sector.”
Michelle Lawson, Director at Fareham-based Lawson Financial, said the government is to blame.
She added: “Catastrophic construction figures are a result of the government’s failures. The cost of materials and pay have risen astronomically with Labour.
“Let’s face it, their house building target was never achievable but their spectacular own goals have quite literally nailed it.”
Colette Mason, Author & AI Consultant at London-based Clever Clogs AI, said costs for construction have sky-rocketed.
She continued: “Construction isn’t short of demand. It’s short of everything needed to meet it. Materials costs are still elevated, skilled tradespeople are aging faster than apprentices are coming in, and borrowing costs have made half the pipeline unviable.
“But the real killer is confidence. Developers won’t commit when planning takes years, rates stay unpredictable, and every project carries more risk than it did three years ago. You don’t get 1.5 million homes from an industry that can’t price a job six months out with any certainty. The government’s target isn’t for the birds, it’s for a construction sector that doesn’t currently exist.”
Samuel Mather-Holgate, Managing Director & IFA at Swindon-based Mather and Murray Financial, said the UK economy is crumbling.
He added: “No hard hat is going to save Rachel Reeves and Keir Starmer after such dire construction data, and they both need to go. Under their watch, the whole UK economy is crumbling, with the construction sector a major drag. What happens when Angela Raynor leaves, and Rachel Reeves remain in charge of the economy?
“Construction crashes and crisis prevails. Construction was the worst sector in the most recent GDP figures and there is no hint that things will improve anytime soon.”
