Rising costs, reducing confidence

Economic Week In Review | Issue 532 | 08 June 2026

UK construction and property

  • UK construction saw its sharpest decline since the first covid lockdown, with the PMI at 38.2 in May—17 months of contraction. Economic uncertainty, inflation, high borrowing costs, and rising material and energy prices have cut new orders and delayed projects. Order books are shrinking, and confidence is low, though infrastructure projects in energy and transport offer some support.
  • UK construction administrations dropped to 22 in May 2026, down 21% year on year and just below April. Most affected were small firms. The sector still faces cashflow issues, rising costs, weak margins, supply chain delays, project setbacks, and tough economic conditions, making the decline likely temporary.
  • BSR | The BSR approved 75% of Gateway 2 applications in the 12 weeks to May 2026. 65% of decisions were for London projects, indicating a strong regional focus. Approval rates and processing speeds are improving, especially for new builds, as the regulator addresses a backlog and upholds safety standards.
  • Apprenticeships | The CITB has launched an Accelerated Apprenticeship scheme to speed up training and help tackle skills shortages in construction, particularly in housebuilding. Apprenticeships will be reduced from 2-3 years to around 14-18 months, allowing workers to enter the industry more quickly.
  • Construction employment forecasts | The first ever Annual Skills Report 2026 from Skills England forecasts a 26% rise in demand for construction workers by 2035, needing 493,000 more workers as 595,000 are expected to leave the industry. 40% of key construction jobs face competition from other sectors, mainly engineering, making retention challenging. While construction course participation rose 25% from 2021-2024, but this doesn’t ensure enough job-ready workers, especially for roles needing practical or advanced skills.

Global economy

  • Eurozone economy | The Eurozone economy unexpectedly contracted by 0.2% in Q1 2026, largely driven by weak data from Ireland, where output fell sharply by 12.1% masking modest growth in economies like Spain, Italy and Germany.
  • Eurozone unemployment stayed at 6.3% in April, unchanged from March and last year. Unemployed numbers dropped by 84,000 from March to 11.1mn but were 45,000 higher than a year ago. Youth unemployment fell to 14.7% from 15.1%. The EU Commission has warned up to 1.3mn jobs could be lost in 2026 due to higher energy prices from Middle East conflict.
  • Eurozone inflation rose to 3.2% in May, from 3% in April, the highest since September 2023. Gradual increases are expected due to ongoing energy price pressures, but weak consumer demand and lower savings may limit further inflation as businesses may struggle to pass on higher costs.
  • Tariffs | Donald Trump has proposed a 10-12.5% tariffs on imports from about 60 countries, including the UK, EU, Canada, and Australia, citing concerns over forced labour in supply chains. The move is seen as an attempt to revive his protectionist trade agenda after previous tariffs were ruled unlawful.
  • Global outlook | The OECD notes a weaker global economic outlook from a Middle East-driven energy shock, raising inflation and slowing growth. Global GDP in 2026 may slow to 2.8% in 2026, or 2.1% if disruptions last. Inflation is expected to rise with higher energy and food costs with G20 inflation in the OECD baseline scenario expected to reach 4.0% by the end of 2026 before falling to 3.1% in 2027.

UK economy

  • AI | The UK government has established the AI Economic Institute (AIEI), marking the first government-supported institute dedicated to studying AI’s economic impact. Its goal is to explore how AI influences the economy, such as productivity, labour markets, and economic growth, in order to maximize AI’s benefits while addressing related risks and potential disruptions.
  • UK growth | The OECD projects that UK growth will slow to 0.9% in 2026, an increase from the earlier estimate of 0.7%, but still lower than last year’s 1.4%. This slowdown is attributed to inflation affecting incomes, spending, and investment. The growth forecast for next year has been revised down to 1.1% from 1.3%. Inflation is anticipated to reach 3.7% this year before falling to 2.4% next year, with both figures being slightly below previous predictions.
  • Inflation | UK firms expect to raise prices more slowly over the coming year, with the Bank of England’s Decision Maker Panel showing price growth expectations falling to 4.0% in May from 4.4% in April.  While this suggests reactions to the conflict are moderating, these expectations exceed general inflation expectations – including the  Bank of England’s latest forecast of 3.2% between Q2 2026 and Q2 2027.

Materials and commodities

  • UK construction material deliveries fell in April; bricks down 5.4% and concrete blocks down 10.7%. Despite lower demand, material prices rose 3.2% due to steel and aggregates, reflecting an increase in supply chain inflation. The largest increases in April were fabricated steel that rose 8.5% year on year. Rebar fell by 5.2% over the same time-period. Cost inflation is still expected to continue despite falling volumes.
  • Steel | The OECD warns that surplus global steel, mainly from China, is putting pressure on prices and threatening the industrial economy. Overcapacity may reach 745 million tonnes by 2028, about 300 million tonnes above current OECD production.
  • Oil | OPEC+ agreed to increase oil production by 188,000 barrels per day (bpd) in July, this follows earlier increases, bring total planned output rises to 600,000 bpd since April. In practice, most of these increases are largely symbolics due to the ongoing conflict which has disrupted production and restricted exports. However, if the market does change there could be a shift from shortage to surplus fears.

Environment

  • Coal |President Donald Trump announced a $700m plan to boost the US coal industry using the Defence Production Act, with $500m for existing plants, mines, and a new California export terminal, plus $200m for new coal plants in Alaska and West Virginia.
  • UK ETS | The UK Emission Trade Scheme (ETS) has expanded its scope and will now include maritime shipping, applies to cargo and passenger vessels over 5000 gross tonnage, from the 1st of July 2026.

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 10,368.05 -0.40 17.62
FTSE 250 22,980.15 -1.90 8.62
Nikkei 66,588.12 0.39 76.43
CSI 300 4,816.92 -1.54 24.34
S&P 500 7,383.74 -2.59 23.05
Nasdaq 25,709.43 -4.68 31.64
CAC 40 8,218.24 0.43 5.30
Dax 24,759.05 -1.38 1.87
$ per £ 1.3300 -0.67 -1.41
€ per £ 1.1600 0.11 -2.57
Gold £/oz 3,245.28 -3.76 32.61
Brent Oil $/barrel 93.09 1.13 40.05

Weekly Summary

Ongoing events in the Middle East are continuing to impact construction costs and confidence, as reflected by May’s UK construction PMI, which saw its steepest drop since the first lockdown. The construction sector is facing challenges from economic uncertainty, inflation, and elevated borrowing costs—factors that also influence broader economic sentiment and outlook. The OECD forecasts UK growth will ease to 0.9% in 2026, down from 1.4% last year. However, this projection is an improvement over the 0.7% growth forecast made by the OECD in March, indicating that the economy is performing better than previously anticipated.

While rising material costs have been a major focus in recent months, Skills England’s first annual skills report emphasizes that labour shortages and retention remain significant challenges, from both a costs and supply perspective. The CITB’s Accelerated Apprenticeship scheme aims to address some of these skill shortages; however, there are concerns that this pathway may not produce enough job-ready workers, particularly for positions that require practical or advanced skills.

Author contact

Rachel Coleman
Rachel Coleman,
Director, Market Insight
Kishan Patel
Kishan Patel,
Research Analyst

Related reviews

Website &AGENCY