Will a Falling Dollar Spark a Construction Upswing?

2025 is emerging as a turning point in the global macro environment. At its core is a coordinated push for increased liquidity. The implications could be positive for our sector.

Construction has always been influenced by macroeconomic forces. Interest rates, liquidity, inflation, and currency flows are ultimately what drive confidence, investment, and project viability. While local planning policy and material prices matter, the engine of the development and construction sector is global finance.

Since the COVID-19 pandemic, the industry has been operating in a cloud of uncertainty. First came supply chain shocks and inflation, then aggressive interest rate hikes, and most recently a freezing of credit conditions. These pressures have combined to suppress development activity and stall many otherwise viable regeneration schemes.

But as we move through 2025, the tide may be turning, and global macro dynamics could finally align in favour of construction.

Global Liquidity and the Falling Dollar

A central driver is the apparent weakening of the US dollar. Under new US Treasury Secretary Scott Bessent, we’re seeing what looks to be a deliberate strategy to devalue the dollar and flood global markets with liquidity.

Over 50% the world’s debt is US dollar-denominated, and 98% of the world's trading is in US dollars. A weaker dollar eases pressure on overseas borrowers, supports emerging markets, and unlocks offshore funding. It also makes US exports more competitive and increases the appeal of risk assets, creating tailwinds for global capital deployment.

Several key mechanisms are enabling this shift:

• Drawdown of the US Treasury General Account – injecting cash directly into the banking system.
• Winding down of the Fed’s Reverse Repo Facility – unlocking hundreds of billions in parked liquidity.
• The likely end of quantitative tightening – reducing pressure on credit availability.
• Coordinated global action – including Japan’s ongoing yield curve control and China’s liquidity injections.

"Shadow QE"

While central banks have not formally restarted QE, they’re using indirect methods - shadow QE. Tools like balance sheet operations, collateral facilities, and yield suppression are being quietly reactivated, with broadly similar effects.

Overlay this with new regulations like Basel IV, which compel banks to hold more high-quality liquid assets (HQLA) and further downward pressure is exerted on yields, easing borrowing conditions across.

Base Rate Cuts in the UK and Europe

As inflation data softens and economic growth stagnates, both the Bank of England and the European Central Bank are signalling rate cuts in the second half of 2025. Markets are currently pricing in two cuts in the UK this year, with the ECB already confirming cutting the three key interest rates by 25 basis points.

Lower base rates reduce the cost of capital across the board, from mortgages and development finance to infrastructure bonds and institutional lending. For the construction sector, this acts as a direct stimulant: improving project viability, increasing buyer affordability, and encouraging lenders to re-engage with schemes that had previously stalled under tighter monetary conditions.

These cuts, when combined with the global liquidity story and the weakening dollar, create a reinforcing cycle of capital inflows and investment momentum across Europe’s property and infrastructure sectors.

Beyond the Noise: Liquidity vs. Rhetoric

While global headlines focus on political and trade tensions involving China, Canada, Mexico, India, the UK and the EU, this appears be part of a carefully choreographed macroeconomic strategy. Such posturing provides cover for coordinated monetary easing, without sparking accusations of currency manipulation or triggering market panic.

Beneath the diplomatic theatre, liquidity is flowing - not through explicit quantitative easing, but via bond purchase mandates, regulatory adjustments, and collateral facilities that quietly ease financial conditions across developed economies.

QE and Inflation Concerns

Inflation has been the primary constraint on monetary easing since 2022. Elevated prices forced central banks globally - including the Bank of England and the ECB - into aggressive rate hikes, which in turn suppressed property development, curtailed speculative investment, and drove up the cost of materials, labour, and finance.

However, in 2025, the inflation picture is changing. Headline inflation in the UK and Europe has decelerated significantly due to:

• Falling energy costs following a stabilisation of global supply chains.
• Improving goods deflation from Asia, particularly China, where domestic demand remains weak.
• Base effects from year-on-year comparisons, which are now more favourable.
• Tighter monetary policy finally transmitting into reduced consumer demand and wage growth.

Global disinflation is now emerging just as liquidity is being reintroduced. This disinflation is not being driven by a recessionary collapse, but rather by stabilising supply chains and global excess capacity, especially in Asia.

For the construction sector, this is critical.

• Input costs stabilise: With inflationary pressures easing, material costs (steel, cement, aggregates) may level off, allowing developers to better manage risk and cost planning.
• Margins improve: Reduced cost volatility supports stronger project margins, particularly important for regeneration schemes where viability is often marginal.
• Monetary policy can pivot: With inflation falling back towards targets, central banks are gaining room to cut interest rates and stimulate credit expansion, directly benefiting property and infrastructure investment.

Falling inflation is what enables this next phase of expansion. It allows central banks to unlock credit without fear of overheating, and provides developers with a more predictable financial and procurement environment.

Implications for Construction and Regeneration

For developers and contractors, this evolving landscape presents real opportunity.

As liquidity expands and interest rates soften, financing becomes more accessible. This is particularly impactful for capital-intensive, multi-phase regeneration or infrastructure schemes, where viability often hinges on funding cost and duration.

Commodity prices may rise with a weaker dollar, historically inflationary for construction inputs. But if liquidity drives broader disinflation, as some anticipate, we may instead see cost stability paired with demand growth. This is a rare and very advantageous combination.

Foreign capital would also return more decisively. With UK assets appearing undervalued to dollar investors, commercial and residential opportunities, especially in London and the South East, become attractive again.

Institutional investors seeking returns in a lower-rate environment will likely pivot toward alternative assets, including real estate-backed infrastructure and ESG-aligned regeneration. Dormant or delayed schemes, paused due to financing constraints or uncertainty, will begin to move again.

Positioning for What Might Come Next

While uncertainties remain, the macroeconomic backdrop is shifting materially in favour of the construction and regeneration sector. The confluence of falling inflation, anticipated rate cuts, and a coordinated global push for liquidity marks a potential inflection point.

If sustained, these dynamics could unlock capital, revive stalled schemes, and usher in a new cycle of investment-led growth. Our industry must be alert, agile, and prepared to act quickly as conditions may improve far quicker than we expect.