Rising Costs and Inflation: The Industry’s Relentless Pressure Point
For contractors across the UK built environment, few challenges loom larger than rising costs and inflation. The Centre for Construction Best Practice (CCBP) Industry Confidence Report, which gathered views from 44 contractors and consultants across the sector, underscores the strain that financial pressures continue to place on project delivery and long-term planning. While activity levels remain high, inflationary pressures and stagnant budgets are eroding confidence, threatening margins, and reshaping how contractors approach risk.
Survey Evidence of Financial Strain
The data reveals nearly three-quarters (72%) of respondents agreed that rising costs are significantly impacting project delivery. From labour and materials to energy and logistics, inflation is impacting cost across the whole supply chain. More than half (56%) reported that inflationary pressures are actively affecting project planning and execution, adding complexity and risk at every stage.
Perhaps most tellingly, 60% of respondents felt that client budgets are not adequately recognising these increases. This misalignment between cost reality and budget provision is leaving delivery teams squeezed. Contractors are expected to absorb rising expenses without corresponding adjustments in project funding, creating an imbalance that undermines financial viability.
Insights from Industry Sentiment
The Industry Confidence Report highlights cost pressures as one of the defining challenges of today’s market. Rising costs are “significantly impacting delivery,” while inflation continues to distort planning and forecasting. The failure of client budgets to reflect these realities compounds the strain.
Qualitative responses, discussing contractors sentiment on the biggest threats to the sector:
- “Budget cuts and skills shortages along with rising material costs.”
- “Skills shortage, world events that cause inflation.”
- “Inflation.”
These comments show how intertwined inflation is with broader sector pressures. Material costs and skills shortages are not standalone issues—they are interconnected, amplifying each other’s effects. Global events, supply chain disruption, and domestic policy all play into a challenging cost environment.
The Wider Impact on Delivery Models
When rising costs collide with rigid budgets, the consequences ripple across the sector. Contractors may find themselves forced into unsustainable pricing just to win work, heightening the risk of disputes and insolvency down the line. For clients, the temptation to hold budgets static undermines quality and jeopardises project timelines.
Moreover, rising costs create uncertainty that hinders investment in innovation and digital transformation, as firms are forced to prioritise short-term results over long-term growth. The knock-on effect extends to skills development, where tight margins leave less room for training and upskilling—at a time when the industry desperately needs to attract and retain talent.
A Systemic Challenge
Respondents comments also point to a deeper frustration. Rising costs are not simply cyclical but are being exacerbated by structural weaknesses in procurement and funding. Contractors argue that cost increases are too often overlooked in project planning, with procurement practices slow to adapt to market volatility. This mirrors broader industry concerns around risk allocation, where contractors feel they shoulder financial burdens disproportionate to their control over inflationary factors.
Adjusting to a New Cost Reality
The way forward requires a recalibration of how costs are recognised and shared. To protect delivery and sustain industry confidence, three shifts stand out:
- Client budgets must reflect market conditions. Stagnant cost assumptions will only deepen financial strain. Clients, particularly in the public sector, need to adapt budgets in line with inflationary pressures.
- Collaboration must underpin cost management. Early contractor involvement and open-book approaches can help align expectations, mitigate risk, and ensure more realistic pricing.
- Resilience must be built into planning. Inflation is unlikely to disappear overnight. Firms should embrace scenario planning, supply chain diversification, and value engineering to navigate cost volatility more effectively.