Inflationary pressures persist

Economic Week In Review | Issue 547 | 21 September 2026

UK construction and property

  • UK construction insolvencies fell by 20% month-on-month and 1.9% year-on-year, with most insolvencies affecting smaller firms. A 6.2% drop in specialist construction insolvencies drove the annual improvement. However, construction still has the most business failures of any UK industry and remains financially vulnerable, with ongoing cashflow pressures, weak demand, and tough market conditions.
  • Construction starts | Glenigan data presents a mixed outlook for UK construction. Project starts declined significantly, falling by 49% between June and August compared with the previous three months. However, contract awards increased by 45% over the same period, suggesting the potential for a stronger future workload. The sharp rise in contract awards was mainly driven by infrastructure and public-sector schemes. The strength of the future pipeline will depend on these projects successfully moving through planning and funding.
  • Grid upgrades | The National Audit Office (NAO) has cautioned in its latest report that more than half of the 56 essential construction projects required to meet the Clean Power 2030 target are exposed to “significant risks”, with only five progressing as planned and four already set to miss the 2030 deadline. Skill shortages, supply-chain issues, planning delays and rising costs were citied as key obstacles.

Global economy

  • Bank of Japan | The Bank of Japan (BOJ) has raised its key interest rate from 1% to 1.25%, the highest since 1995, to curb energy-driven inflation, driven by conflict in the Middle east, and support the weakened yen, which earlier this year had fallen to a 40-year low against the dollar.
  • EU-Canada | The EU has proposed Canada as its first “associate member,” but this status is still only a concept. While both sides have responded positively its benefits, obligations, and legal framework have yet to be defined and agreed.
  • France’s public debt is projected to rise to 119.3% of GDP in 2026 and 121.7% in 2027, mainly due to ongoing budget deficits and increasing borrowing costs. This would result in France holding debt levels that exceed the EU’s recommended ceiling of 60% of GDP by more than twofold.

UK economy

  • UK inflation reached 3.1% in August, a five-month high, mainly due to higher petrol and diesel costs from rising global oil prices. Core and services inflation were unchanged, indicating stable underlying inflation. Domestic energy bills are expected to rise further, with Goldman Sachs forecasting inflation could peak at about 3.9% in early 2027.
  • Interest rates | The Bank of England has kept interest rates at 3.75% after a 6-3 Monetary Policy Committee (MPC) vote, as rising energy prices linked to Middle East tensions raise inflation concerns. Governor Andrew Bailey warned rates may need to rise if energy-driven inflation persists.
  • Wage growth in the private sector slowed to its lowest level in nearly six years with wages increasing by 2.9% in the three months to July. Slower wage growth reduces the risk of a wage-price spiral, which in turn fuels further inflation. The UK unemployment rate remained at 4.9% from the period of May to July 2026.
  • Fiscal headroom | KPMG’s latest economic outlook says the Middle East war has reduced flexibility before the autumn budget, limiting scope for tax cuts or major new spending while meeting fiscal rules. According to the outlook, the Chancellor’s fiscal headroom may fall to about £12 billion, down from £23.6 billion in its spring forecast, meaning difficult decisions may be needed in the autumn budget next month.

Materials and commodities

  • Diesel export ban | US lawmakers are considering banning diesel exports after US prices hit a record $6.29 per gallon, 22% higher than a year ago, a move that could significantly affect diesel supplies to import-dependent Europe.
  • Steel | The UK government has revealed plans to take Speciality Steel UK (SSUK) into public ownership. The company, which employs over 1,300 people across Rotherham, Stocksbridge, Brinsworth and Wednesbury, experienced serious financial challenges in 2025, resulting in plant closures and staff being furloughed on reduced wages.
  • Liquified Natural Gas (LNG) spot prices have climbed sharply, with certain benchmark rates increasing by about 150% from February as competition between Europe and Asia intensifies. Europe’s readiness to pay higher prices, driven by worries over energy security and the need to rebuild stocks before winter, has diverted LNG cargoes away from Asian buyers, heightening the risk of supply shortages in some Asian regions.
  • Construction material costs are continuing to rise, driven by geopolitical tensions, higher energy prices, and steel-related trade measures. According to the Department for Business and Trade (DBT) construction materials price indices for all work rose 5.9% year-on-year to July 2026. Fabricated structural steel recorded the highest rise at 20.9% in July 2026 compared with the year prior followed by rigid pipes and fittings at 15.5%. However, not all materials saw price increases, as cement prices fell by 3.5% year-on-year.

Environment

  • Climate damage | Preliminary EU estimates indicate that this summer’s heatwave has resulted in approximately €180 billion worth of damage killing around 35,000 people in Europe alone. Although rising temperatures are affecting every region on earth, Europe has warmed more rapidly than any other continent.
  • Food supply | A recent report from sustainability advisory firm Aethr Associates highlights that the UK’s food supply is growing more vulnerable to climate-related risks, as an increasing share of its fresh produce imports originates from regions that are more prone to water scarcity and severe weather events.

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 10,659.13 0.08 15.65
FTSE 250 24,205.42 0.96 12.11
Nikkei 65,018.95 1.57 44.34
CSI 300 4,507.39 -0.06 0.12
S&P 500 7,650.50 -0.08 14.80
Nasdaq 26,522.55 0.72 17.19
CAC 40 8,065.02 -1.40 2.69
Dax 25,304.06 -1.03 7.04
$ per £ 1.3400 -0.54 -0.68
€ per £ 1.1700 -0.14 1.66
Gold £/oz 3,268.45 1.61 19.47
Brent Oil $/barrel 103.87 -0.71 55.77

Weekly Summary

UK inflation increased to 3.1% in August, while core and services inflation stayed the same. This suggests that the rise in inflation was mainly due to external energy-related factors rather than widespread demand pressures throughout the economy. The Bank of England decided to leave interest rates unchanged for now, diverging away from other developed nations decision to raise rates, but its stance remained hawkish: if energy-driven inflation persists, further rate increases may be introduced.

In the construction sector, insolvencies and new project starts decreased, while the number of contracts awarded increased, indicating the potential for a more robust future workload. However, the sector remains divided, with infrastructure and public sector projects continuing to drive the future pipeline. Inflationary pressures remain evident, with the DBT construction material price indices for all work increasing by 5.9% year-on-year up to July 2026. However, it is important to consider material prices on an individually basis to understand the full picture, as fabricated structural steel has seen significant price increases, while cement prices have declined compared with the previous year.

Author contact

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

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