Tariffs, labour costs and delays: construction under pressure

Despite recent moves to relax US steel tariffs, new research shows that the UK construction industry continues to face one of the steepest cost rises of any sector.

Although the 25% tariff on US steel imports has now been lifted, the damage to confidence and project planning may already be done. Delays, cost uncertainty, and supply chain disruption are adding pressure to an industry already stretched by high material and labour costs.

Recent PMI data from S&P Global and CIPS reflect the strain. While the overall index for April edged up slightly to 46.6 (from 46.4 in March), it remained below the 50.0 threshold for the fourth consecutive month — signalling continued contraction. Housing and civil engineering activity also stayed in negative territory, at 47.1 and 43.1 respectively.

Construction among hardest hit

According to analysis by money.co.uk, using official ONS data, construction ranks third among UK sectors most affected by cost increases. Over a quarter (26.4%) of construction businesses reported higher prices between December 2023 and November 2024 — trailing only accommodation/food and manufacturing.

Price fluctuations for materials such as timber, steel and concrete have long been part of the landscape, but are now intensified by higher transport costs, wage inflation and labour shortages.

In April, increased National Insurance contributions and a higher National Minimum Wage added to the burden. Kelly Boorman, national head of construction at RSM UK — a leading provider of audit, tax and consulting services to mid-market businesses — warned that these cost pressures are already impacting labour-intensive sectors like construction. “The threat of tariffs and unpredictability in the supply chain are creating a competitive environment for subcontractors to compete on price and negotiate better terms,” she said.

She also pointed to persistent delays in housing activity and local authority frameworks as obstacles to development — despite government efforts to accelerate planning reform. “We’ve recently seen housebuilding in London slump to its lowest level since 2009,” Boorman added. “It’s becoming difficult for housebuilders to absorb these costs.”

Uncertainty still a major risk

Thomas Pugh, economist at RSM UK, said the continued sub-50 reading in the construction PMI is unsurprising. “Uncertainty from tariffs continues to weigh on the whole economy,” he noted. He also highlighted how recent cost hikes are largely driven by a “huge increase in employment costs.”

Even with expectations for Bank of England rate cuts and rising household incomes, labour shortages and thin profit margins are seen as major obstacles to hitting government housing targets.

How construction businesses can stay resilient

Here are four steps to help firms reduce costs and build long-term financial resilience:

1. Review and streamline expenses

Audit your outgoings regularly. Cancel underused subscriptions, negotiate better terms with suppliers, and explore more affordable options. Embracing digital tools can also streamline operations and cut overheads.

2. Build a financial buffer

Use a dedicated business savings account to set aside funds for emergencies. This gives you quick access to cash while earning interest in the background — a vital lifeline when unexpected costs hit.

3. Budget for the unexpected

Anticipate inflation and price volatility by locking in prices with long-term supplier contracts. Avoid over-reliance on any single supplier to reduce exposure to market shocks.

4. Monitor cash flow like a hawk

Use accounting platforms such as QuickBooks or Xero to track real-time income and expenses. Understand your seasonal trends, and work with clients and suppliers to adjust payment terms in your favour where possible.

Final word

The construction sector is no stranger to volatility, but a mix of rising costs, tariff uncertainty and planning delays make the current environment especially challenging. However, there is cautious optimism: strong real household income growth and increased government infrastructure spending may provide support in the months ahead.¹

For now, though, proactive cost management, strategic planning, and careful saving remain essential for businesses navigating this climate of uncertainty.

Sources:

1. S&P Global / CIPS UK Construction PMI, April 2025
2. Office for National Statistics (ONS) Business Insights
3. RSM UK (www.rsmuk.com)