Iran war could drive construction and energy price rises, experts warn after Spring Statement

Mr Rickard added: “Measures to mitigate against the impact of this are vital, given that cost pressures have wrought havoc in recent years on development activity and resulted in the viability challenge we now face.”

Karl Horton, data services director at the Building Cost Information Service (BCIS), said that “prolonged unrest” in the Middle East “raises risks for input construction costs”.

He said: “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 sub-contractors paying more for transport and materials.

“This would place upward pressure on tender prices and could constrain project viability or delay investment decisions.”

He pointed out that this week’s economic forecast from the Office for Budget Responsibility (OBR), which included higher than expected reductions in inflation and borrowing costs, was completed before the Iran war escalated, potentially rendering the forecast out of date.

Mr Horton added that a sustained increase in energy prices could “quickly place pressure” on the UK government’s spending plans and “reduce the likelihood of a rapid uplift in construction output”.

Noble Francis, economics director at the Construction Products Association, made a similar point. He said: “One noteworthy point in the Spring Statement was that the OBR forecasts the low point in housebuilding will be next financial year [2026-27], after which it expects housebuilding to rise very sharply.

“However, despite this, it still forecasts only 1.3 million net additional dwellings in the UK over the five-year parliament.

“The government’s 1.5 million target is for England only over five years, and the OBR forecast is equivalent to 1.1 million net additional dwellings in England. So the OBR forecasts that the government will miss its housebuilding target by 400,000 homes or 26%. 

“Furthermore, given that the OBR forecasts are overoptimistic due to the recent Middle Eastern conflict, as inflation will be higher and there will be fewer delayed interest rate cuts than the OBR has forecast, this suggests that the OBR’s housebuilding forecasts will be revised down further at Autumn Budget 2026.”

The cost of building surged 24% between 2020 and 2023, according to the BCIS, when supply chains were disrupted by the Covid pandemic and the Ukraine war turbocharged energy costs.

The surge in wholesale gas prices followed by Russia’s invasion of Ukraine forced the government to step in and reduce energy costs for consumers in October 2022.