Infrastructure and defence investment boosts construction outlook

Strong demand from the infrastructure, defence and utilities sectors is helping to support north west construction companies as delays, rising costs and viability pressures continue to weigh heavily on the industry.

That is the opinion of David Hackett, partner at north west accountancy and advisory firm MHA, the UK member firm of Baker Tilly International.

David was speaking following the release of the latest S&P Global UK Construction PMI data for September 2026, which rose to 46.1 from 44.3 in August. The index stood at 44.7 in July, with a reading below 50 indicating a contraction in the sector. 

Although September recorded the slowest contraction since January, the construction sector continues to face rising costs and declining business confidence due to global geopolitical tensions and high borrowing costs.

Reflecting on the PMI index over the last quarter, David said the figures represented a growing divide between resilient infrastructure led work and more challenging conditions for speculative development.

He said: “Infrastructure, utilities, defence and data centres have stronger prospects than other areas of the market, supported by both public and private sector investment.”

He also said more projects were likely to be delayed in certain sectors as developers waited for costs, funding, planning and end values to align.

He said: “Private residential development is increasingly dependent on viability and construction costs. Given the cost of capital, the criteria for developing on a speculative basis have been pushed back further. 

“The defence sector is likely to see significant investment, given the way of the world, while utilities and data centres are also generating interest and activity. Continued investment in data centres will be key to the UK remaining competitive in AI, but it also creates a massive appetite for water and electricity.”

David indicated that many of MHA’s clients were reporting healthy order books, but said the challenge was ensuring that costs, funding, planning permission and end values aligned so schemes could proceed.

In the residential sector, the government recently announced plans for its new Your First Home scheme in England, which is expected to enable eligible first time buyers to purchase new-build homes with a 2.5 per cent deposit, backed by a 20 per cent government equity loan.

However, David questioned whether the scheme would effectively address underlying housing supply constraints.

He said: “Improving first time buyer access will have minimal impact if we're not building new housing stock quickly enough, all that's going to happen is that prices are pushed up.”

David said that, if this happened, the scheme could increase developer profits and improve confidence within parts of the housing sector, but would be unlikely to address fundamental development barriers, including the planning system, or provide a long term solution to the housing crisis. 

However, he remained optimistic that the north west was well placed to withstand the downturn because of its exposure to key sectors, diverse economy and strong skills base. 

He said: “The north west has a strong investment proposition, given its universities, life sciences and professional services sectors, as well as Manchester’s established private equity market.

“The region benefits from its advanced manufacturing base, great logistics and connectivity, Liverpool Freeport and sustained demand for housing. Those strengths all flow into the construction sector.”