The UK construction market is vitally important to the country’s economy. The construction industry employs almost one in ten of the UK’s workforce. The volume of construction work in the market has been falling, but can be expected to transition to growth once again in 2025 based on the following three factors:

• the stage of the economic – in particular the interest-rate – cycle;
• the political climate; and
• continuing advances in innovation and technology.

Economic and policy indicators suggest that interest rates should be falling by and during 2025 from roughly 18-year highs. Indicators include the drop in inflation in April to 2.3%, which was very close to the Bank of England’s 2% target. As a result, the International Monetary Fund now forecasts that the UK Bank Base Rate will be down to 3.5% by the end of 2025.

Historically, such declines have tended to lead to an uptick in private-sector investment and expenditure. Construction is usually the first market to benefit from this recovery in economic sentiment and growth.

Then there is the General Election announced for the UK in July. If the opinion polls are correct, there is a high likelihood of a change in UK government. Generally, new governments bring an initial increase in expenditure. This could mean additional central government capital expenditure, looser purse strings for local authorities, and the touting of new planning laws and other changes to promote increased home building. Even if the polls are not correct, we would expect a fresh mandate for the existing government (and the forecast improved economic conditions mentioned above) to result in higher construction spending in the UK in the near future.

Lastly, technological innovation in the UK construction market continues apace. New developments in modular construction and off-site manufacture, for example, are set to endure. In addition, AI and other technological developments will impact construction – both in terms of methods of delivery and the types of assets and technology within them that the industry is called upon to build.

Impact of These Factors on the UK Construction Market

We would highlight seven key developments in the UK market in the year ahead, as follows.

”Up-Tick“ Risk

This possible upturn in workflows for construction in the UK would likely create “up-tick” risk, because higher workloads would follow at least two years of reduced workflows, hyper-inflation and supply-chain disruption. These factors have all hurt the balance sheets of much of the supply chain – including at main contractor, employer and even local-authority level. Experience shows that the taps cannot be suddenly turned on to cope with such an up-tick – or at least without unintended consequences. Construction companies suddenly inundated with additional work can find themselves over trading and short of cash or other vital resources to meet new demand. What are the practical effects of this risk likely to involve? First, past cycles have often shown an increased incidence of supply-chain insolvency. Second, this stage of the cycle often evidences an increase in construction disputes, particularly at the early stage of such an up-tick.

Innovation

Innovation in all sectors is being driven by technology, and in particular by advances in Artificial Intelligence, and this is the case with the UK construction sector, too. Many UK construction companies are actively exploring and investing in what such technology can give them in terms of competitive advantage. In practice, this means that these technologies will require new collaborative forms of contracting for their development and use. They will also need new drafting to address the fresh issues that such advances raise. As with many such changes, the short term at least could see them viewed as a disruptors with unintended consequences, driving an increase in new types of disputes that require equally innovative resolutions. As a law firm specialising in the construction market, Pinsent Masons is deploying its own AI solutions for delivering legal services to construction clients. This has included the development of Decision Data Analytics tools to afford clients a competitive edge.

Increased Use of ADR

The UK Construction industry has always been at the forefront of developments in ADR, and this should continue in 2025. The landmark Court of Appeal ruling in the Churchill v Merthyr Tydfil CBC case, in which the court ordered a reluctant litigant to mediate, will soon be followed by changes to court rules to make this more commonplace. This has already been followed in one of Pinsent Masons’ own construction cases, and the UK’s specialist construction court (the Technology and Construction Court, or TCC) will likely spearhead its use since it is based upon the expertise of that court’s specialist judges and their recent personal experience, as senior practitioners, in how mediation often, in practice, “unlocks” even the most challenging construction law disputes.

Net Zero

The practical effect on the UK construction market of environmental law changes to achieve net zero will continue. The built environment is rightly seen as a key driver for change, and will thus remain central to the serious, practical reform required. This is the case notwithstanding certain policy announcements suggesting a slight slowing of the pace of such changes.

Private Finance Initiative (PFI)

While this is no longer the current delivery method of choice in the UK construction market, PFI, also known as public-private partnership (PPP), is increasingly being used globally. The UK remains a centre of expertise on PFI, called upon to advise upon such projects globally. In addition, the huge number of such projects that have been delivered via this route means that 2025 will continue to see many issues around their operation. This has been evident recently with landmark legal cases relating to PFI projects. For example, in the 2023 Sheffield Teaching Hospital Foundation Trust v Hadfield Healthcare Partnerships Ltd & Ors case, the UK High Court ordered the “special purpose vehicle” (SPV) to provide £2.6m as security for the costs of its claims against a contractor. In another PFI case, Kajima Construction Europe (UK) Limited v Children’s Ark Partnerships Ltd, the UK Court held that the tiered dispute resolution provisions in the PFI contract were unenforceable by the courts because they were too vague and uncertain. The resolution of disputes in such PFI arrangements was addressed in a report recently by the Infrastructure and Projects Authority (IPA). This called for the creation of a unique and bespoke dispute resolution forum for these PFI disputes. Will that take off in 2025? Whilst the idea has merit, it may be harder to achieve with the many stakeholders involved in PFI.

What is very likely is that these PFI projects will continue to give rise to many multi-party, multi-tiered disputes, requiring specialist skills and expertise to resolve. As well as operational issues, many of these long-term projects are now entering “hand back” phase. This is where the long-term (for example 25-year) “concession” during which the asset (eg, a hospital, road, street-light provision) was financed, operated and maintained by the private sector comes to an end. The PFI arrangements contain complex provisions to value the asset to be transferred (or handed back) to the public sector and then wound down the private sector operation. As a result, PFI disputes will remain a feature of the UK market. This will also be another specialist area of construction law where the UK innovates and leads global developments.

Building Safety

The impact of the UK’s Building Safety Act 2022 will continue to be felt at all stages of the construction process, from initial design through to post-completion disputes. For example, that Act now gives an unprecedented 30-year retrospective limitation period for claims under its unique provisions. As a result, issues around the safety of the UK’s buildings can be expected to remain a driving feature of the UK construction market in 2025. While many issues around the combustibility of cladding to high rise, residential buildings may have been remedied, and even litigated, many other building-safety issues endure. The new legal framework from the Building Safety Act requires a fresh approach to design, procurement and construction of UK buildings, as is reflected in new forms of contract and bespoke drafting. The UK courts will remain at the forefront of this area also. For example, the first Building Safety Act claims for contribution against the cladding system manufacturers, and later in 2024 a leading (seven-judge panel) Supreme Court case on building safety and the law of negligence – in the URS v BDW case – can be expected.

Internationalisation

Not only will the opportunities in the “up-tick” UK construction market attract leading global designers, contractors and specialist suppliers, but the UK construction’s legal market will also play an increasingly global role. There is already hard data evidence of this in the latest figures from the UK’s specialist construction court, the TCC. In the year in which it proudly celebrated its 150th anniversary, its latest user figures show an impressive 38% increase in the number of applications dealt with in 2022/2023. This is due to the continued prevalence of the choice of English law in many international contracts, given its recognised predictability and underlying fairness and reasonableness. This is also because, whilst many overseas jurisdictions have specialist commercial courts, the UK’s TCC is rightly recognised for its unique further degree of specialism in construction and technology cases. This trend is likely to continue – with the reliability, cost effectiveness and world leading reputation of the UK’s TCC bringing more international disputes to the UK for resolution.

While such internationalisation will not be confined to the UK Courts, more international arbitrations are likely to be seated in London. Notwithstanding the attempts of many global jurisdictions to establish themselves as centres for international arbitration, London will continue and grow as a seat of choice. This will be driven by the global recognition of the quality and “bench strength” of the world’s leading construction law firms, counsel, experts and arbitrators.

Conclusion

The aforementioned seven key developments will see their evolution in the UK construction market in the year ahead and in the trends observed on the UK construction’s legal market. These will continue to lead the way globally in forms of contracting, innovation and dispute resolution. Exciting times ahead!