Conflict in the Middle East and its impacts on the UK economy and building industry are expected to hit construction activity over the next 12-18 months according to the UK Construction Products Association (CPA).
UK Construction to decrease-In its Spring 2026 Forecasts, it says that the second half of the year will see a drop in construction demand and sharp cost increases, especially in the two largest sectors, private housing and private housing repair, maintenance and improvement (RMI). Overall construction output is now expected to fall by 2.5% in 2026. It is still predicted to grow by 1.2% in 2027, but the CPA cautions this forecast is subject to significant downside risks.
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FIND US ON
At the end of 2025, there was cautious optimism in the UK construction sector. Heavy rain affected activity early in the New Year, but there were signs that better weather in March and April would lead to improvement. However, war in the Middle East changed the outlook, with building now expected to be one of the UK’s worst-affected industries by the conflict.
“Even if there was a resolution to the conflict the day of these forecasts being published, a degree of permanent damage would be done to oil production, shipping channels and additional global uncertainty and risk would be priced in. This is likely to lead to a spike in Consumer Price Index inflation across the economy and construction product price inflation due to oil, energy and input cost rises,” says the CPA.
Privately funded construction sectors are likely to be the worst affected by cost increases, it maintains. They are also expected to be hit by increases in mortgage and financing costs. In addition, house builders face continuing sharp cost rises.
Slow Recovery Expected
SME companies are expected to be the hardest hit by this as they have less ability to plan and purchase in advance.
Overall, the CPA forecasts that the private housing sector will contract by 7.0% in 2026, with 114,801 houses completed, down from 122,129 in 2025. Growth will be negligible, 0.7%, in 2027, then rise to 2.2% in 2028
Private housing RMI was described as subdued in 2025, with growth of just 1.2% and the sector worth £38.1 billion. Now, there are added brakes on activity, namely the prospect of more interest rate raises and geopolitical uncertainty.
Falling Demand
The fall in demand may be partially offset by homeowners investing in energy security and energy efficiency but that could also be constrained by the ending of government programmes supporting energy-related work. The CPA consequently predicts private RMI output to fall by 8.0% in 2026 to £35 billion and flatline in 2027, before growing 3% in 2028.
The CPA reports that the public house construction sector has been adversely affected in the near term by
deteriorating conditions in the building overall. Also, only 60% of housing completions under the SAHP will be for social rent. This leaves a large proportion of development reliant on other forms of tenure, which are subject to rising and falling mortgage rates and customer confidence.
“Elevated uncertainty means there are likely to be delays to schemes being planned now, especially as viability may worsen if there is a lengthy period of inflation and passthrough from high oil and energy prices,” says the CPA Forecasts. Its conclusion is that public sector housing output will contract 4% in 2026 to £8.9 billion, then grow 2% in 2027 and 6% in 2028
Changing work patterns, with more UK employees working from home at least part of the time, is causing caution over construction of new offices and affecting overall commercial building output, which was worth £24.1 billion in 2025. Rising costs, the Middle East conflict and increasing financing costs add to the uncertainty and the CPA expects commercial construction to shrink 3.7% in 2026 before growing 0.5% in 2027.
Skills Shortages
A continuing concern for the future of UK building, says the CPA, is availability of labour, and due to an aging workforce, the loss of construction skills in particular. It points out that the majority of loss of skilled workers since 2018 has been in the 50–64-year-old age group.
Commenting on the CPA Spring Forecasts, Head of Construction Research, Rebecca Larkin, said: “At the start of this year, there was a degree of cautious optimism over the outlook for construction activity in 2026 and 2027.
However, this has been replaced by stark concerns over global factors and oil and industrial energy cost rises, leading to a spike in inflation. The direct impact on construction will be double-digit construction product price inflation, especially in oil-based and energy- intensive products. Increases in inflation across the economy will also hit confidence and spending or investment by homebuyers, homeowners, businesses, clients and investors.”
Risks to the forecasts are heavily skewed to the downside, she said, given uncertainty about the extent of cost increases and their impact on confidence. However, there are potential upside risks if the government provides stimulus for house building and home improvement. The CPA, she added, assumes four months of disruption from the Middle East conflict due to spikes in oil prices, with ‘lagged impacts over the next 12-18 months that culminate in an overall decline in construction activity’.
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