UK Construction Faces Complex Risk Caused by Iran War

As further forecasts are modelling the economic impact of the Iran War, warnings that the UK could move closer to recession this year have emerged.

The latest forecast sees the UK getting close to the ‘brink’ of recession this summer, with the loss of 250,000 jobs and just 0.7% growth.

The impact of restricted supply chains in the energy and food industries particularly are likely to affect the UK most amongst European countries, as the nation is particularly reliant on imports and a global supply chain.

Complex Risk for Construction

Dr David Crosthwaite, Chief Economist at BCIS, said: “The latest forecasts point to a familiar but increasingly complex risk for the construction sector, where input cost pressures, constrained demand conditions and borrowing costs are simultaneously moving in the wrong direction.

“Recent profit warning data reinforces how quickly geopolitical shocks are feeding through.

“Almost half of UK-listed companies issuing profit warnings in Q1 pointed to policy and geopolitical uncertainty as a driver, with sectors linked to housing and construction among the most exposed.

“For construction, the impact is unlikely to come from a single channel.

“Higher energy costs will feed into materials and logistics, while weaker consumer confidence and tighter financing conditions are likely to weigh on housing demand and project viability.

Combined Risk

“This combination limits the ability of firms to pass on cost increases, putting pressure on margins.

“The housing market remains particularly sensitive. Higher borrowing costs and reduced affordability slow transactions and extend sales cycles. Developers also face elevated input and financing costs, which constrains pricing flexibility.

“What stands out in the current environment is the interaction between these pressures, with cost increases sitting alongside softer demand, constrained funding and uncertainty paralysing decision-making across clients and supply chains. This creates a more challenging backdrop than a typical inflationary cycle.”

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