Persistent volatility

Economic Week In Review | Issue 530 | 26 May 2026

UK construction and property

  • HS2 | Transport Secretary Heidi Alexander told MPs that HS2’s opening is expected to be delayed to 2036-39 for Birmingham to Old Oak Common, with Euston service expected to start in 2040. However, an update from HS2 Ltd revealed that 80% of major structures are complete or under construction, and over 70% of major earthworks are finished. This is a major shift from the original 2026 opening plan. Costs have risen to £102.7bn, up from an estimated cost of £32bn in 2011 (£49bn today, including now-cancelled Leeds and Manchester routes).
  • Construction insolvencies rose 14% in March from the previous month but are 7% lower than last year. This is the highest since Oct 2025. Key causes of insolvencies include energy price volatility, higher shipping and supply costs, project delays, late client payments, funding caution, and regulatory delays.
  • Project starts dropped 17% year-on-year for the three months to April 2026, due to rising costs, high borrowing, and weak sentiment. Approvals and contract awards also declined. However, project starts rose 22% and contracts awarded 29% versus the previous quarter, showing short-term improvement. However, the outlook still remains cautious, with the full impact of the Middle East conflict yet to be fully felt.
  • Retention ban | The UK government’s Small Business Protections Bill proposes a phase out construction retentions, banning them after a transition period, and enforce strict penalties (50% fine, high interest on unpaid amounts). It also sets faster payment terms (30 days public, 60 days private), closes loopholes, and encourages alternative security.

Global economy

  • Global growth forecast | The UN now expects global growth of 2.5% in 2026 down from 3% in 2025 with a modest 2.8% recovery in 2027. The downgrade is mainly from Middle East conflict, causing higher energy prices, more inflation, and economic uncertainty. Inflation is set to rise 2.6%-2.9% in developed and 4.2%-5.2% in developing economies.
  • EU growth forecast | The European Commission lowered its 2026 growth forecast: EU growth now at 1.1% (down from 1.4%), eurozone at 0.9%. Consumer confidence is at a 40-month low, with slowing investment, business activity, and exports due to higher costs and global uncertainty.
  • Eurozone inflation rose to 3% in April from 2.6% in March, mainly due to energy shocks. Core inflation remains weak, suggesting the rise is external and likely temporary rather than demand-driven.
  • Eurozone activity dropped sharply in May, with business activity at its lowest in over 2.5 years. War-related costs and fewer new orders caused PMI to fall for a second month. The service sector shrank at its fastest rate since early 2021, with input costs at a 3.5-year high. Business confidence is also weakening hitting a 32-month low.

UK economy

  • UK unemployment rose to 5% in the three months to March from 4.9% in the three months to February. Job vacancies hit a five-year low due to the Iran war impact. Payroll employment fell by 100,000 in April. Wage growth slowed to 3.4%, just above inflation, indicating weaker household spending ahead. A softer labour market may allow the Bank of England to keep interest rates steady.
  • UK inflation dropped to 2.8% in April 2026 from 3.3% in March, mainly due to lower energy bills from government support and earlier wholesale price declines. The drop in inflation occurred despite the rise in fuel price due to the conflict in the Middle East to highs not seen since 2022.
  • UK net migration dropped to 171,000 in 2025 from 331,000 in 2024, following a peak of 944,000 in 2023. The decline is mainly due to stricter government immigration policies.
  • Fuel tax | The Prime Minister announced the fuel duty freeze will last until year-end, delaying the 5p per litre rise. In response to high fuel prices from Middle East conflict, a 12-month road tax holiday for hauliers was also introduced to lower transport costs.
  • Gulf trade deal | The UK signed a Gulf Cooperation Council free trade deal, the first of any G7 country, expected to boost the UK economy by £3.7bn yearly, raise wages by £1.9bn annually, and cut £580m in tariffs, with £360m removed immediately.

Materials and commodities

  • Oil and gas | The UK has temporarily delayed some Russian oil and gas sanctions, allowing certain fuels made from Russian crude via third countries and limited LNG shipping to help manage fuel prices and protect consumers. This is a short-term, phased measure, not a full sanction rollback.
  • Price hikes | Rising energy costs are driving up the prices of construction materials, particularly bricks and concrete. In response, Forterra is implementing price increases and postponing production, indicating that building costs will likely continue to rise. Brick surcharges are scheduled to begin on 1 June 2026.
  • Exchange rates | Sterling fell 0.2% after rallying 0.6% on Monday as hopes for a swift Iran peace deal faded, driven by geopolitical uncertainty and mixed policy signals. When tensions rise, investors favour the US dollar, causing the pound to weaken. Sterling has stayed flat against the dollar since the conflict began but is up 1% versus the euro.

Environment

  • China’s emissions | A BloombergNEF report finds China’s emissions could fall 17% from 2023 levels by 2030, surpassing current targets due to rapid renewables growth and electrification. China is still the top emitter, making its actions vital for global climate goals. However, limiting warming to 1.5°C is unlikely under current trends.
  • Waste management | The EU has updated and strengthened its waste shipment regulations by digitising processes, with the goal of increasing transparency and traceability in waste flows, reducing illegal exports, and positioning waste as a more valuable resource within Europe boosting resource security. The platform is estimated to save €1.4 million annual savings in admin costs.

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 10,466.26 2.66 20.05
FTSE 250 23,167.47 2.53 11.87
Nikkei 63,339.07 3.14 70.45
CSI 300 4,845.10 -0.30 24.80
S&P 500 7,473.47 0.88 28.79
Nasdaq 26,343.97 0.45 40.60
CAC 40 8,115.75 2.05 4.93
Dax 24,888.56 3.92 5.33
$ per £ 1.3500 0.57 -0.31
€ per £ 1.1600 0.73 -2.73
Gold £/oz 3,357.73 -1.46 35.40
Brent Oil $/barrel 100.21 -8.28 56.07

Weekly Summary

Last week’s Glenigan data indicates that although starts and contracts awarded have declined year-on-year, there has been some short-term improvement on a quarterly basis although this growth comes from a low starting point. Still, this modest recovery faces challenges due to ongoing volatility. Factory gate prices across the entire economy, including construction products, were 3.3% higher in March this year compared to March 2025, alongside rising energy, transport, and shipping costs. Even though inflation has fallen to 2.8%, this is viewed as a temporary situation, with analysts expecting inflation to reach around 4% by the end of the year. To help address some of this volatility, the government has implemented temporary measures aimed at lessening the impact of increasing fuel costs.

Recent data shows the UK construction sector is still facing financial stress, though conditions have improved since last year. Main issues cited were higher costs, project delays, and late client payments. The proposed Small Business Protection Bill may lessen some of these challenges boosting cashflow and strengthen supply chains but could also change how risk is managed.

Author contact

Rachel Coleman
Rachel Coleman,
Director, Head of Insight
Kishan Patel
Kishan Patel,
Research Analyst

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