Issue 539 | 27 July 2026 - Turner & Townsend alinea

UK construction and property

Construction forecast | The Construction Product Association (CPA) predicts total UK construction output will drop 3.3% in 2026, mainly due to a weak housing sector. Infrastructure, energy, water, data centres, and commercial refurbishments/fitout projects are expected to remain resilient and help offset declines. Modest growth may return in 2027, but recovery is fragile and vulnerable to economic or geopolitical shocks.
Engineering workloads | A Civil Engineering Contractors Association (CECA) survey found UK civil engineering workloads fell in Q1 2026, with a net 7% of firms reporting lower activity versus last year, reversing gains from late 2025. The biggest drop was in early-stage projects. CECA warned that delays in preliminary works, key infrastructure and strategic roads may hurt sector confidence, investment and productivity.
Profit warnings | UK housebuilders issued eight profit warnings in H1 2026, matching 2008 crisis levels and marking the highest first-half figure since 2020, according to analysis EY-Parthenon. Rising costs and weak confidence have stalled recovery, but long-term prospects remain positive due to housing shortages, supportive government housing policies, and expected lower interest rates from 2027, which could boost demand.

Tariffs | The US has imposed new tariffs of 10–12.5% on imports from 60 major trading partners on nearly all goods imported into the US. The Trump administration says the tariffs are intended to pressure countries to address forced labour in supply chains. Alongside these tariffs, President Trump announced a tariff policy to reshore pharmaceutical manufacturing, targeting imported generics. The tariffs will then rise to 100% for one year beginning in August 2028, after that, the rate will increase further to 200%.
Eurozone growth resumed in July 2026 after four months of stagnation, with gains in new orders, manufacturing, services, and slight job growth, signalling improved business confidence. Economists remain cautious due to inflation, energy costs, and geopolitical risks that could impact recovery later in 2026.

Electricity bills | Prime Minister Andy Burnham has announced that, starting 1 October, VAT on household electricity bills will be removed, reducing it from 5% to zero. The government expects this change will help households save an average of £45 per year, while the Treasury will forgo approximately £850 million in tax revenue.
UK inflation dropped to 2.6% in June, mainly due to lower motor fuel, food, and clothing prices. This decrease is likely temporary, as external factors may push inflation above 3% later this year.
Defence spending | The Burnham government is indicating a significant change in focus: defence spending will be safeguarded and increased, even if it means reducing budgets in other areas. Ministers are confident that this approach will enhance security and promote economic growth. However, critics are concerned about whether allocating resources away from other sectors is the most effective way to use public funds.
Borrowing costs | In June, the UK borrowed £16 billion, which was less than expected and £7.9 billion lower than in June 2025. This improvement was supported by increased income tax and VAT receipts, as well as reduced interest payments on inflation-linked government debt. However, even with this monthly decrease, borrowing for the year so far remains above OBR forecasts, meaning the new government still faces limited fiscal flexibility and challenging budget choices.

Oil prices dropped significantly as the US and Iran halted military actions, reducing concerns about a major interruption to global oil supplies via the Strait of Hormuz. Brent crude, the global benchmark for oil, has fallen 5.3% to $91.68 per barrel, after reaching $100 last week. Despite the sharp drop, the overall movement for the week was upwards.
Copper prices may soon reach a US record, driven by low supplies in China and US traders holding stock in anticipation of possible Trump import taxes. The decision on new US duties is pending. Copper prices are up 10% on the London Metal Exchange and 16% in New York this year.
Natural gas prices | Last week, the price of European natural gas climbed above €60 per megawatt-hour (MWh), reaching its highest level in four months. Prior to the ceasefire agreement last month, European natural gas prices had remained steadily below €50 MWh. Similarly, UK wholesale gas prices have risen from approximately 98p per therm at the end of June to about 150p per therm.
Lithium prices hit a five-month low after major mines in China and Australia resumed operations, raising oversupply concerns. Demand remains high for batteries, data centres, and AI infrastructure needed to support AI. Despite high demand for the metal, there are still fears of a supply glut in 2027.

SAF | The UK Export Finance (UKEF) agency is increasing support for sustainable aviation fuel (SAF) to attract investment, create jobs, boost exports, reduce emissions, and enhance the UK’s aerospace sector. UKEF could potentially fund up to 100% of eligible contracts if 20% or more comes from UK suppliers.
Heatwave | The UK faces its fourth 2026 heatwave, with southern England temperatures reaching 32-33°C. Health warnings have been raised due to risks for vulnerable people and increased strain on public services.