The increasing conflict in the Middle East has lead to weaker credit and higher cost pressures, says RICS
The latest construction monitor from the Royal Institution of Chartered Surveyors (RICS) highlights a net -12% in UK construction activity in Q1 2026.
This is another stark decrease from the -6% recorded in Q4 2025 and marks a severe drop across several sectors as the conflict in Iran has escalated, affecting supply chains.
Several sectors have been heavily weakened
Private housing has been hit the hardest, according to the report, with workloads dropping to a net -19%, with private commercial and private industrial not far behind at -15% each.
Just one sector, infrastructure, stayed positive but still saw a drastic drop in activity, from +12% to +4%. This positivity for infrastructure is largely due to energy projects, which remained at +24%, and water and sewage, at +20%.
Credit conditions are a major pressure point on the industry, as the net balance over the last three months has dropped to -29%, and expectations for the next three months have dropped to -51%. Alarmingly, 66% of respondents to the RICS survey have cited financial constraints as a factor limiting their activity.
That makes financial constraints the top obstacle for firms, with planning and regulation following closely, with 63% of respondents citing them.
Expectations of cost also jumped, with respondents expecting a 6.6% rise in construction costs over the next year and a 7.5% rise in materials costs. Tender prices are expected to rise by 5.6%, putting the viability of projects into question for many respondents.
Issues present “significant impediments for developers”
Other aspects of the report show that activity in repair & maintenance stayed flat at a net +2%, and new work was weakened to -11%. In terms of employment, expectations were positive dropped from +14% to +8%.
RICS chief economist, Simon Rubinsohn, said: “The impact of the war in the Middle East is clearly visible in the Q1 RICS Construction Monitor. Rising material costs, a tougher credit environment and increased pressure on margins are already leading some developers to slow construction activity.
“More significantly, plans for the next twelve months are being scaled back most notably in the private sector. Expectations around housebuilding are now flat which aligns with the comments from leading housebuilders in their recent trading updates and results statements.
“Alongside the tougher financial environment, concerns continue to be raised around the challenges thrown up in the planning process and the ongoing impact of the Building Safety Regulator (BSR). Even with the passage of the Planning and Infrastructure Act and the improved performance of the BSR, it is evident that both these factors remain significant impediments for developers.”
The full RICS construction monitor Q1 2026 can be found here.
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