Slower growth prospects?

Economic Week In Review | Issue 527 | 05 May 2026

UK construction and property

  • Construction wages dropped in early 2026; average weekly pay fell 2% year-on-year and 4% since December 2025 to £789. Weak demand, falling output and geopolitical uncertainty mean pay rises are unlikely in the near term.
  • Steel tariffs | The government has agreed to review steel tariff impacts after construction leaders raised concerns. Ministers will collaborate with the sector to find solutions before the new rules take effect on 1 July.
  • Office construction starts fell 36% to 4.8m sq ft, the lowest since 2013, according to Deloitte’s London Office Crane Survey. Completions rose 8% to 7.1m sq ft, with 9.4m sq ft set for 2026. The survey shows a shift from new builds to refurbishment: 1.6m sq ft of new office starts in 2025 compared to 3.1m sq ft of refurbishments. This shift reflects viability, delivery risk, planning delays and occupier requirements rather than sustainability alone. Deloitte warns supply gaps driven by delivery constraints may push prime rents higher despite strong demand.
  • Financial distress | According to insolvency specialists BGT, UK construction firms in “critical” financial distress rose nearly 50% year-on-year in Q1 2026, due to high material and labour costs, weak margins on legacy fixed-price contracts, and ongoing cash-flow issues.

Global economy

  • Debt | Italy is expected to surpass Greece as the euro zone’s most indebted country in 2026, with debt reaching 139% of GDP. Greece’s debt is decreasing due to strong growth and early loan repayments, while Italy’s stays high because of slow growth and costly past building incentives.
  • Made in Europe | China has cautioned the EU about its “Made in Europe” rules, which require local content requirements for public funding in key sectors including cars, green technology and steel. The EU aims to protect industries and boost jobs, but China views this as protectionism that may impact EU-China trade relations.
  • State aid | The EU has temporarily raised state aid limits, allowing subsidies for heavy industry up to 70% of increased energy and fuel costs from the Middle East crisis, up from the usual 50%.
  • Eurozone inflation rose to 3% in April, mainly due to energy prices increasing 10.9% year-on-year, influenced by Middle East conflict. Economic growth slowed to 0.1% in Q1, raising concerns about inflation and weak growth. The European central bank kept interest rates unchanged.
  • Tariffs | China has eliminated import tariffs on goods from 53 African countries, extending duty-free access to all African nations with diplomatic ties to Beijing.

UK economy

  • Interest rates | The Bank of England has held interest rates at 3.75% as uncertainty over the conflict in the Middle East continues. The Banks decision came less than 24 hours after oil price hit their highest level since 2022 at $126 a barrel.
  • UK borrowing costs have reached their highest since 1998, with 30-year gilts at 5.7% and 10-year gilt yields at their highest level since the 2008 financial crisis. Public debt servicing costs have risen notably, and the UK now has the highest government bond yields among G7 nations.
  • Population growth | The ONS now projects that deaths will outnumber births in the UK every year from 2026 onwards, marking a significant demographic shift. The change is driven by two main factors, falling fertility rates and a sharp reduction in net migration compared with the post-pandemic peak.

Materials and commodities

  • Steel prices in Europe have risen around 20% over the past six months, driven by higher energy costs, reduced imports and stronger EU trade protections. EU steel makers are expected to report higher Q1 profits compared to the previous quarter as the Middle East conflict has helped regionalise the steel market, with European buyers shifting towards domestic suppliers amid fear of supply chain disruptions and Asian competitors being hit harder due to their higher dependence on Middle Eastern energy.
  • OPEC | The UAE will leave OPEC and the wider OPEC+ alliance in May 2026. Analysts warn the decision could significantly weaken OPEC’s influence over global oil prices in the long term.
  • Re-Bridge, a new UK online catalogue, offers a marketplace for surplus steel bridge structures. Asset owners can list unused structures, enabling others to access materials for new projects.
  • BMBI | According to the Builders Merchant Building Index (BMBI), sales volumes dropped 10.6% year-on-year, while sales by value fell 4.3%, despite prices rising by around 7%. Heavy building materials were among the weakest categories, with value sales down 8.4% reflecting the ongoing weakness in construction demand.
  • Mineral Product Association (MPA) Q1 2026 data shows continued low demand for construction materials and early signs of project delays due to rising costs. Mortar sales dropped 5.4% year-on-year, ready-mixed concrete fell 0.5% quarter-on-quarter, and sand and gravel sales decreased by 5%.

Environment

  • Climate change | According to the World Meteorological Organisation and the European Centre for Medium-Range weather forecasts, Europe is officially the fastest-warming continent in the world, with almost all countries recording above-average temperatures in 2025. Heatwaves, droughts and wildfires intensified in 2025, with fires burning more than one million hectares of land, while around 70% of European rivers experienced below-average water flows.
  • EU carbon price forecasts fell after proposed ETS reforms to lower energy costs. Analysts now expect €81/tonne in 2026 and €93 in 2027, 15% below earlier estimates. Policy uncertainty, supply rule changes, a wider ETS overhaul, concerns over industrial demand from the Iran war and high energy costs have driven volatility.

 

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 10,363.93 -0.15 20.56
FTSE 250 22,531.61 -0.23 11.32
Nikkei 59,513.12 -0.34 61.59
CSI 300 4,807.31 0.80 27.50
S&P 500 7,230.12 0.91 27.14
Nasdaq 25,114.44 1.12 39.70
CAC 40 8,114.84 -0.53 4.43
Dax 24,292.38 0.68 5.22
$ per £ 1.3500 -0.09 2.02
€ per £ 1.1600 0.35 -1.17
Gold £/oz 3,398.99 -2.32 39.17
Brent Oil $/barrel 108.17 9.12 76.49

Weekly Summary

Last week, the Bank of England (BoE) decided to keep interest rates unchanged amid ongoing uncertainty in the Middle East. Prior to the conflict, most investors anticipated one or two reductions in the BoE Bank Rate before summer. Currently, markets are factoring in up to three interest rate hikes this year, with analysts pointing to the inflationary effects of rising energy costs and geopolitical tensions as the main reasons for this more cautious approach. Gilt yields have also climbed, which has raised the cost of borrowing and added more pressure to already stretched public finances.

Economists caution that the UK’s economic stability may be at risk due to the combined effects of high borrowing costs, persistent inflation, and sluggish growth. For the construction industry this scenario could strain project viability, delay project starts and reduce investor confidence who may opt for a more “wait and see” approach. This doesn’t help an industry that is currently suffering from weak demand and falling output.

 

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst
Kishan Patel
Kishan Patel,
Research Analyst

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