UK Construction Sector Faces Record Cost Inflation Amid Iran Conflict

In March 2026, British construction firms reported the most significant rise in cost inflation on record, as indicated by S&P Global's UK Construction Purchasing Managers' Index (PMI). The index for input cost inflation surged to 70.5, up from 59.5 in February, marking the largest month-on-month increase since the survey began in 1997. This spike in costs is attributed to the ongoing war in Iran, which has driven up prices for fuel and raw materials, exacerbating existing inflationary pressures.

BloombergReuters

The conflict in Iran has had a profound impact on the UK construction sector, with disruptions in the Strait of Hormuz leading to shipping delays and worsening supply chain performance for the first time since mid-2025. The turmoil in energy markets, fueled by US and Israeli military actions, has resulted in fragile confidence among builders and delayed investment decisions. As a result, new orders for construction firms fell at the fastest pace since November 2025, contributing to a broader decline in activity across the sector.

Reuters

Despite a slight increase in the overall construction PMI to 45.6 from 44.5, the index remains below the growth threshold of 50.0 for the 15th consecutive month. The latest data indicates that the construction sector has experienced a continuous decline in activity, with housebuilders being particularly affected. Although some businesses reported a turnaround in infrastructure work, especially in the energy sector, the near-term outlook remains challenging due to rising inflation, gloomy economic prospects, and higher borrowing costs.

Reuters

Tim Moore, economics director at S&P Global Market Intelligence, highlighted the concerns among executives regarding escalating inflationary pressures and the overall economic outlook. He noted, “Escalating inflationary pressures, gloomy domestic economic prospects and higher borrowing costs were widely cited concerns in March.” This sentiment reflects the broader anxiety within the sector as it grapples with the implications of the ongoing conflict in the Middle East.

Bloomberg

Critics argue that the government's response to the inflationary crisis has been inadequate, with calls for more robust measures to support the construction industry. The prolonged decline in activity raises concerns about the potential for stagflation, as the composite PMI indicates a flatlining private sector. Builders are particularly worried about the implications of continued cost increases and the impact on future investment.

Bloomberg

While the S&P Global PMI indicates a significant rise in cost inflation, there are discrepancies regarding the overall impact on output and employment within the sector. Some reports suggest that while commercial and civil engineering activities continue to decline, energy infrastructure projects are providing some demand stability. However, the extent of this stabilization remains uncertain.

Bloomberg

As the situation in Iran evolves, the UK construction sector will likely continue to face challenges related to cost inflation and supply chain disruptions. Stakeholders are closely monitoring developments, with expectations for future activity at their lowest since December 2025. The ongoing conflict and its economic ramifications will be critical factors influencing the sector's recovery trajectory.

Reuters