The UK construction sector is facing growing economic headwinds as the ongoing Iran conflict continues to drive up energy costs and material prices while demand across the industry remains subdued, according to new analysis from the Building Cost Information Service (BCIS).

One hundred days after the outbreak of the conflict, BCIS said the impact is now extending well beyond commodity markets, creating additional challenges for contractors, clients and investors already dealing with a difficult trading environment.

Dr David Crosthwaite, Chief Economist at BCIS, said the industry is facing a combination of rising costs and weakening activity.

Energy and material costs continue to rise

He said: “Construction is being affected through multiple channels simultaneously. Higher energy costs are increasing pressure on supply chains and materials, while inflationary pressures and uncertainty around interest rates are weighing on confidence, investment decisions and demand.”

According to BCIS, Brent crude oil prices have remained above $100 per barrel since mid-March, while elevated natural gas prices have increased manufacturing, transport and logistics costs across the construction supply chain.

Provisional BCIS data shows diesel fuel prices were 38% higher in April 2026 than a year earlier, adding further cost pressures for plant operations and distribution.

The impact is also being felt across key construction materials. Aluminium prices increased from $2,967 per tonne in early January to $3,769 per tonne by late May, with the BCIS aluminium windows and doors work category index rising by 14% between April and May.

Housebuilding and construction demand under pressure

BCIS said higher energy, transport and import costs are likely to keep inflationary pressures elevated, creating additional uncertainty around future interest rates and investment decisions.

The organisation believes residential construction could be particularly exposed due to its reliance on mortgage affordability and consumer confidence, with wider construction growth forecasts weakening as economic uncertainty persists.

Dr Crosthwaite said the current market differs from previous global disruptions affecting construction.

He said: “During the Russia-Ukraine conflict, significant cost inflation was accompanied by relatively strong demand conditions, enabling higher costs to feed through more readily into tender prices.

“By contrast, the current conflict is unfolding against a backdrop of weaker economic growth, subdued construction activity and declining confidence.”

Tender prices and supply chains face further uncertainty

Feedback from the BCIS Tender Price Index Panel for the second quarter of 2026 also highlighted ongoing cost pressures, particularly for energy-intensive materials.

Industry cost consultants reported rising steel prices linked to geopolitical uncertainty and trade measures, while petroleum-based construction products, including insulation, PVC products and roofing materials, are also expected to come under upward price pressure.

However, BCIS said weaker market conditions and competitive tendering are limiting the extent to which higher costs can currently be passed on to clients.

Dr Crosthwaite added: “Weak construction demand and material surpluses have limited the extent to which some increases have fed through into project costs, with mixed evidence of price rises in tender returns.

“The longer the conflict continues, the greater the risk that higher energy and commodity costs become embedded throughout supply chains. The key question for the industry is not whether rising costs will affect tender prices, but how far those pressures can feed through in a market where demand remains so weak.”

The latest analysis adds to wider concerns over construction market conditions, with contractors continuing to balance inflationary pressures, supply chain volatility and a slowdown in activity across key sectors of the industry.