Construction Activity Declines as Middle East Conflict Drags On

Why It Matters

Higher material costs and tighter financing threaten project viability, slowing private‑sector building and pressuring profit margins across the UK construction market.

Key Takeaways

• Workloads fell to -12% net balance in Q1 2026.
• Private housing workloads dropped to -19%, deepest sector decline.
• Infrastructure activity stayed positive, led by energy (+24%) growth.
• Credit conditions net balance hit -29%, tightening financing.
• Construction cost forecasts rise 6.6% overall, 7.5% materials.

Pulse Analysis

The Royal Institution of Chartered Surveyors' Q1 2026 Construction Monitor paints a stark picture of a contracting UK building sector. Overall workloads slipped to a net balance of -12%, with private housing plunging to -19% and commercial and industrial projects both down around -15%. The only bright spot was infrastructure, which retained a modest 4% net balance, buoyed by a 24% surge in energy projects and a 20% rise in water and sewage work. Industry leaders trace this reversal directly to the protracted conflict in Iran, which has amplified material price volatility and disrupted supply chains.

Financing pressures are compounding the material shock. The survey shows credit conditions deteriorating to a -29% net balance, while expectations for the next quarter fell to -51%, signaling tighter lending standards and higher borrowing costs for developers. Coupled with projected construction cost increases of 6.6% and material cost hikes of 7.5% over the next twelve months, profit margins are under strain. Private‑sector developers, especially housebuilders, are scaling back new starts, and tender prices are expected to climb 5.6%, eroding project viability. The squeeze is prompting many firms to revisit cash‑flow forecasts and delay non‑essential upgrades.

Looking ahead, the trajectory of the Middle East conflict will remain a key barometer for the construction market. Policymakers may need to consider targeted credit support or tax incentives to offset rising input costs and preserve employment, which still shows a modest 8% hiring outlook. Meanwhile, firms are likely to prioritize supply‑chain resilience, locking in material contracts early and diversifying sources. Monitoring RICS indicators will be essential for investors and contractors seeking to navigate the uncertainty while capitalising on the still‑robust infrastructure pipeline.