Construction companies across the UK are facing some of the steepest cost increases in almost three decades as rising fuel prices and supply chain disruption linked to the Iran conflict place fresh pressure on the industry.
A closely watched survey of construction firms showed input cost inflation surged in April to its highest level since mid-2022, when commodity prices spiked following Russia’s invasion of Ukraine.
Construction Sector Faces Rising Pressure
The latest purchasing managers’ index (PMI) for UK construction activity fell sharply to 39.7 in April, down from 45.6 in March, signalling a deep contraction in activity across the sector.
Any reading below 50 indicates declining business conditions, and the sector has now gone more than a year without sustained growth.
Construction companies reported rising expenses linked to fuel, raw materials, labour and energy, while demand for new projects remained weak.
Iran Conflict Drives Up Costs
Industry analysts said the conflict involving Iran and disruption around the Strait of Hormuz shipping route had pushed up global fuel and transport costs, feeding directly into construction supply chains.
Suppliers have passed on higher shipping and energy expenses to builders, increasing the price of key materials used across housing and infrastructure projects.
Businesses also reported delays in deliveries and growing difficulties importing materials from Gulf region suppliers.
Sharpest Cost Growth Since 1997
According to data compiled by S&P Global Market Intelligence, April’s increase in purchasing costs was among the steepest recorded since the survey began in 1997.
Economics director Tim Moore said the pace of inflation was comparable only to the period immediately following the pandemic and the global commodity shock triggered by the Ukraine war.
Around two-thirds of firms surveyed said they experienced higher operating costs during the month.
Labour Government Faces Building Challenge
The downturn presents a challenge for the government’s plans to expand housebuilding and infrastructure development.
The Labour government has pledged to “get Britain building again” and aims to deliver 1.5 million new homes by 2030.
However, the industry has struggled with weak demand, high borrowing costs, labour shortages and rising construction expenses over the past two years.
The latest cost increases threaten to place additional pressure on developers already facing difficult market conditions.
Housebuilders Warn Over Market Conditions
Major UK housebuilders have already started warning investors about the impact of rising costs and economic uncertainty.
Both Crest Nicholson and Berkeley Group recently issued profit warnings, citing higher costs and weaker demand linked to global instability.
Meanwhile, Travis Perkins, the UK’s largest builders’ merchant, reported challenging trading conditions and falling revenues in the first quarter of the year.
Labour Shortages and Weak Demand Continue
The construction sector, which contributes around 7% of UK GDP and employs more than two million people, has also been struggling with workforce shortages and an ageing labour force.
Many companies said they were not replacing staff who left voluntarily because of slowing workloads and uncertainty over future projects.
Businesses also reported slower sales activity and delays in converting enquiries into confirmed contracts.
Supply Chain Problems Add to Industry Strain
Supply chain disruption remains a major concern for contractors and developers.
Rising shipping costs, fuel volatility and geopolitical tensions have increased fears that projects could face further delays and higher expenses in the months ahead.
Analysts warn that continued instability in global energy markets could place even more pressure on UK construction firms already operating with tight margins.
UK Economy and Construction Outlook
The construction industry is considered a key indicator of wider economic confidence in Britain.
Higher interest rates and inflation have slowed property demand and reduced investment across both residential and commercial projects since 2023.
Although inflation had started to ease earlier this year, the Iran conflict and renewed pressure on global oil markets have raised concerns that costs could remain elevated for longer.
Economists say prolonged instability could delay recovery across the sector and complicate government efforts to boost economic growth through infrastructure and housing investment.