One hundred days after the outbreak of conflict in Iran, the UK construction sector is facing mounting pressure from rising energy costs, persistent inflation and weakening demand, according to analysis by the Building Cost Information Service (BCIS). While the conflict initially impacted commodity markets, its effects are now spreading more widely through the economy, creating challenges for construction firms, clients and investors alike. Dr David Crosthwaite, BCIS chief economist, said: “The conflict is no longer simply a commodity market story. The longer it continues, the more its effects are spreading. “Construction is being affected through multiple channels simultaneously. Higher energy costs are increasing pressure on supply chains and materials, while inflationary pressures and uncertainty around interest rates are weighing on confidence, investment decisions and demand. “What makes the current situation unusual is that the industry is experiencing rising cost pressures at the same time as activity is weakening. Previous shocks have often been characterised either by strong inflationary pressures or weak demand. Today we are seeing both forces at work simultaneously.” The most immediate impact has been through energy markets. Brent crude oil has remained above $100 per barrel since mid-March, while natural gas prices have also remained elevated. This has increased transport, logistics and manufacturing costs across the construction supply chain. Provisional data from BCIS work category indices show that DERV (diesel engined road vehicle) fuel prices were 38% higher in April 2026 than a year earlier, adding pressure to plant operation, distribution and wider construction logistics costs. At the same time, key construction-related commodities have experienced significant price increases. Aluminium prices, for example, rose from $2,967 per tonne in early January to $3,769 per tonne by late May, approaching levels seen during the Russia-Ukraine conflict. The BCIS aluminium windows and doors work category index increased by 14% between April and May. The wider economic implications are becoming increasingly significant. Although UK inflation eased in April, BCIS expects inflationary pressures to remain elevated for longer as higher energy, transport and import costs continue to feed through the economy. Financial markets have also shifted their expectations for interest rates, with the prospect of lower borrowing costs becoming increasingly uncertain. Earlier expectations for construction growth have also weakened as uncertainty around inflation, interest rates and economic growth has increased. Residential construction is expected to be among the sectors most exposed to these pressures due to its sensitivity to mortgage rates and consumer confidence. Dr Crosthwaite said the current situation differs from previous global disruptions affecting the construction sector. He said: “During the height of the Russia-Ukraine conflict, significant cost inflation was accompanied by relatively strong demand conditions, enabling higher costs to feed through more readily into tender prices.  “By contrast, the current conflict is unfolding against a backdrop of weaker economic growth, subdued construction activity and declining confidence. It also differs from the Red Sea shipping disruption, where impacts were more heavily concentrated on logistics and freight.” This tension between rising costs and weaker demand is also reflected in feedback from the BCIS Tender Price Index (TPI) Panel in 2Q2026. The panel, which comprises practising cost consultants from firms involved in multiple tenders across the UK, reported cost pressures in energy-intensive materials. Several respondents highlighted rising steel prices linked to geopolitical tensions and trade measures. Petroleum-derived products such as PIR insulation, PVC and roofing materials are also expected to see upward pressure. Dr Crosthwaite added: “Weak construction demand and material surpluses have limited the extent to which some increases have fed through into project costs, with mixed evidence of price rises in tender returns. This suggests that competitive market conditions are continuing to constrain the extent to which higher costs are reflected in tender prices. “The longer the conflict continues, the greater the risk that higher energy and commodity costs become embedded throughout supply chains. The key question for the industry is not whether rising costs will affect tender prices, but how far those pressures can feed through in a market where demand remains so weak.” Building, Design & Construction Magazine | The Choice of Industry Professionals