Karl Horton, data services director at the Building Cost Information Service (BCIS), comments on the UK's Spring Statement and forecasts for the country's economic and fiscal outlook from the Office of Budget Responsibility, highlighting risks to construction costs from the conflict in Iran and continuing restraints on the government's housing and infrastructure commitments.
Against the backdrop of escalating conflict in Iran, restoring confidence through the Spring Statement was always going to be challenging.
Much of the current uncertainty affecting markets lies beyond domestic policy control, yet uncertainty remains a significant constraint on investment.
The Office for Budget Responsibility's (OBR) downgrading of GDP growth to 1.1% in 2026 is very unlikely to ease concerns over geopolitical instability among construction's businesses, clients and funders.
Weaker growth expectations for 2026 and a looser labour market are more likely to continue tempering demand.
Prolonged unrest in the Middle East also raises risks for input construction costs.
While it's too early to draw firm conclusions, a spike in energy prices, such as the increases reported in the oil and gas markets this week, could see contractors and subcontractors paying more for transport and materials.
This would place upward pressure on tender prices and could constrain project viability or delay investment decisions.
The Chancellor welcomed higher-than-expected reductions in inflation and borrowing costs.
However, the OBR notes that its forecast closed before conflict in the Middle East escalated, potentially outdating new forecasts before they were published.
For now, the government's housing and infrastructure commitments remain in place but scope for additional, fiscal support or rapid delivery seems restricted.
Any deterioration in the growth outlook, or sustained increase in energy prices, could quickly place pressure on spending plans, and reduce the likelihood of a rapid uplift in construction output.
