Middle East Oil Shock Tightens Squeeze on UK Construction Firms as Growth Cut To 0.7%

UK construction firms and trade SMEs are set to face disproportionate pressure from the latest oil price shock.

New OECD analysis points to a sharper slowdown in the UK than other major economies and growth is forecast at just 0.7% in 2026, down from 1.2%, as rising energy costs push inflation higher.

The surge in oil prices, from around $60 per barrel in January to approximately $100-$130 following conflict escalation in the Middle East, is feeding directly into building materials, transport and site costs. It reinforces how heavily the UK relies on imported energy, leaving construction businesses particularly exposed to global price shocks.

While the impact is economy-wide, construction and trade businesses are uniquely exposed due to structural dependence on transport, materials and energy intensive operations with limited capacity to absorb sustained cost increases due to tight margins, warns Mark Sait, CEO of sustainability consultancy SaveMoneyCutCarbon.

Rising fuel costs are now feeding directly into the price of raw materials, plant use, deliveries and distribution.

Nobel Francis, Economics Director at the Construction Products Association this week estimated “If oil remained above $100 per barrel for 2 months, we would be looking at around 6-8% additional inflation in construction product prices.”

Oil Shock

Cost increases are creating a cumulative squeeze on margins across the sector and adding pressure to already complex supply chains.

Producer price data continues to show fuel and raw materials as key drivers of input cost inflation across UK industry, reflecting how energy volatility is translating into broader commercial pressures.

The UK’s exposure is further compounded by its reliance on imported fuels, with around 35-40% of total energy supply sourced from overseas, leaving businesses more vulnerable to geopolitical disruption than more self-sufficient economies. It means global shocks translate quickly into UK domestic cost increases.

At the same time, questions are intensifying around the political drivers of energy markets, as geopolitical conflict and policy decisions increasingly influence supply and pricing dynamics. This creates an additional layer of uncertainty for UK construction businesses, where external factors beyond traditional market fundamentals are shaping operational costs and financial planning.

Businesses Exposed

The challenge is particularly acute in urban centres, where construction demand is concentrated and infrastructure remains heavily dependent on centralised systems. Despite ongoing investment, significant gaps remain between current capacity and future demand, particularly as site operations, heating and wider building systems transition toward electrification.

Although many organisations are exploring ways to reduce reliance on fossil fuels, progress remains uneven. Electrification, onsite energy generation and efficiency improvements are gaining traction, but adoption is often constrained by capital requirements, infrastructure limitations and the operational complexity of upgrading sites, estates and delivery models. This leaves a significant proportion of businesses exposed to continued volatility.

SaveMoneyCutCarbon said the case for reducing dependence on volatile energy markets is becoming increasingly urgent, with construction and trade businesses focused on stabilising costs and improving resilience through demand reduction, electrified systems and onsite generation.

Mark Sait, CEO of SaveMoneyCutCarbon, said: “In an unpredictable global market, these steps are becoming as much about resilience and competitiveness as they are about sustainability.”

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