Confidence despite headwinds

Economic Week In Review | Issue 540 | 03 August 2026

UK construction and property

  • Construction retention | The UK government will not allow exemptions to its construction retention ban, rejecting proposals for a 2% retention cap of contract value to cover defects and snagging issues. The government also clarified that contracts under the Procurement Act 2023 must meet 30-day payment terms per the Commercial Payment Bill.
  • Vocational qualifications | The UK government has announced that it plans to introduce local tailored education pathways for students 14+, aiming to boost construction career interest, tackle skills shortages, and give employers more input in training.
  • Right-to-work | The UK government intends to strengthen right-to-work regulations, potentially holding main contractors responsible for any illegal workers employed throughout their subcontracting chain unless they can show they have carried out appropriate due diligence. These new rules are scheduled to come into force on 1 October 2026.
  • UK construction sector confidence increased in July, with optimism about workloads, hiring, and investment. Lloyds Bank’s Business Barometer showed confidence at 56%, above the 12-month average of 47%. Stronger customer demand and better financial conditions drove this rise. Over two-thirds of construction firms expect higher activity, and nearly two-thirds plan to hire more staff.
  • Data centres | Ofgem is consulting on measures to stop speculative data centres from using limited grid capacity, ensuring faster connections for ready projects as part of wider grid reforms. Ofgem suggests large data centre developers pay a refundable fee (2.5–7.5% of project costs) when accepting grid connection offers. The fee is returned when the project reaches energisation but forfeited if the developer withdraws early.

Global economy

  • Global manufacturing | China now produces 28% of global manufacturing output, surpassing the US, Japan, and Germany combined. The US share dropped from 20% to 17% in two decades, while China’s share tripled. Western countries shifted to services, finance, and technology, with manufacturing centred in China.
  • US interest rates | The Federal Reserve has kept interest rates steady at 3.5%-3.75%, choosing to adopt a wait-and-see approach.
  • Yen support | The US and Japan jointly intervened, the first since 2011, to stop the Yen falling further after it fell to a 40-year low. The Yen has been challenged recently as Japan’s central bank interest rate is much lower than other major economies, which makes it less attractive to international investors.
  • China factory output fell unexpectedly in July, marking the first decline since February. This decrease was driven by a contraction in domestic orders, disruptive typhoons, and an unwinding of the pressure to increase domestic production. China’s policymakers met in July and offered support for already-budgeted infrastructure projects, rather than providing additional support for the economy.

UK economy

  • Experience economy | Research conducted by Opinium on behalf of Grant Thornton UK found that almost 40% of people in the UK prioritised spending on experiences rather than objects, rising to 54% for people aged between 18 and 34.
  • Interest rates | The Bank of England has kept interest rates steady at 3.75% for the fifth consecutive meeting, while indicating that rates may increase if ongoing US-Iran tensions cause persistent inflation. Additionally, the Bank cautioned that a worldwide shortage of memory chips, fueled by growing AI demand, could contribute to inflation by raising technology costs.
  • Growth forecasts | The National Institute of Economic and Social Research (NIESR) cut UK growth forecasts to 1.1% for 2026 and 2027 due to higher energy costs and Middle East conflict uncertainty. The institute warned Andy Burnham that the next UK Budget may be tough, with the government potentially needing £24 billion more by decade’s end to maintain public services and welfare payments in real terms.
  • Middle East impact | EY predicts that UK GDP will grow by only 0.5% in 2026 and shrink by 0.2% in 2027 if the Strait of Hormuz stays closed until early or mid-2027. If the situation improves and the strait reopens by the end of Q3 2026, EY anticipates UK GDP growth of 0.9% in 2026 and 1.2% in 2027.
  • UK graduate job openings have fallen to the lowest level since the pandemic. By comparison, job postings are currently above pre-pandemic levels in Europe and the US.

Materials and commodities

  • Permanent oil diversions | Market analysts believe that even if an accord is reached with permits safe transit across the Strait of Hormuz, it will remain an area of potential unrest, and alternative permanent routes are being sought. While the currently market focuses on security challenges that tankers face, extended pipelines remain vulnerable to different threats.
  • OPEC + has approved an oil production increase of around 188,000 barrels per day (bpd) for September, completing the reversal of a voluntary production cut programme that began in 2023.
  • Copper prices could potentially rise due to winter storms disrupting Chilean mining. As Chile supplies over 20% of global copper, any prolonged outage could further boost prices, though ING notes short-term storms may not cause major market shifts.

Environment

  • South Korea has recorded its highest temperatures ever, 42.5 degrees Celsius, and authorities have recommended that all outdoor activities are stopped “immediately” and added that “indoor spaces without air conditioning are dangerous.”
  • UK heatwaves | According to the UK Health Security Agency, England is on a path to see the highest number of heat-related deaths since records began. Between May and June, there were 2,877 heat-related deaths, almost double the figure seen in all of 2025.

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 10,868.05 1.23 19.84
FTSE 250 23,975.02 0.73 10.49
Nikkei 64,362.02 -0.39 57.75
CSI 300 4,588.20 -1.31 13.15
S&P 500 7,489.72 1.05 20.07
Nasdaq 25,373.85 1.59 22.88
CAC 40 8,509.64 1.64 12.77
Dax 25,629.24 2.11 8.01
$ per £ 1.3400 0.99 1.35
€ per £ 1.1700 -0.24 1.72
Gold £/oz 2,998.18 -1.44 18.37
Brent Oil $/barrel 90.12 -1.70 29.35

Weekly Summary

The Bank of England kept interest rates at 3.75% for the fifth month, mirroring the Fed’s cautious stance due to Middle East conflict and oil price uncertainty. NIESR cut the chancellor’s budget estimate from over £7bn to about £3bn, while the OBR estimate in March had put Treasury’s spare capacity at £22bn, showing the conflict’s financial effect on the UK economy. Andy Burham is confronted with a difficult situation, as inflation has reduced spending power, borrowing costs remain high, new demands for spending have emerged, and cost-of-living pressures continue.

UK construction sector confidence surged, above the 12-month average in July, with optimism about workloads, hiring, and investment driven by stronger customer demand and better than expected financial conditions. The optimism was associated with public sector initiatives and infrastructure investment; however, this confidence could decline due to reduced fiscal flexibility and the potential for elevated inflation.

Author contact

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

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