The latest quarterly Construction Management Intelligence report from Rider Levett Bucknall reveals a sector that has shifted from optimism to caution, with many now assessing how the Middle East conflict will be contained and what the short, mid or long-term impact may be on the industry.
Recent data from the Office for National Statistics revealed that new orders for construction had risen by 12.6% year on year, with the market outlook boosted by an increase of more than 46% in infrastructure and nearly 41% in new orders for public housing projects. But that was then.
Before the Middle East conflict escalated, inflation felt like it was under control and interest rates were on a downward trajectory. However, geopolitical developments have introduced new uncertainty into the economic outlook, with recent speculation about fuel increases and supply chain and procurement challenges due to trade channels closing, and the resulting impact on inflation and interest rates.
RLB has raised its tender price inflation forecast for 2026 to 3.45%, compared to the previous quarter forecast of 3.27%. However, there will be heightened volatility with RLB describing concurrent input cost increases and dampened pipelines. Contractors are likely to continue to price selectively, with risk allowances varying by sector and project type rather than moving uniformly across the market, the firm says.
Paul Beeston, head of industry and service insight at RLB, said: 鈥淥nce again, the industry is navigating the impact of international events. We are increasingly seeing tender prices influenced more by geopolitical factors than by traditional economic cycles. Much will depend on how quickly the current situation is resolved, but it is important to recognise that many underlying conditions are more positive today than during previous shocks. While risks have risen, it is important not to allow rhetoric to overtake reality.
鈥淚f disruption is short lived, any inflationary pressure from higher input costs is likely to be moderated by slowing pipelines. However, a more prolonged period of disruption would shift the balance of risk between concurrent input cost pressures and pipeline concerns which will pull tender prices in different directions in different sectors. In that environment, informed decision making, rather than over reaction, will be critical.鈥�
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