Iran conflict and impact of new regulations set to see project costs rise, Arcadis says

Arcadis has warned that disruption caused by the Middle East conflict is expected to continue for the rest of the year with the consultant saying rising inflation and the ongoing impact of regulation will hit schemes for the foreseeable future.

In its latest render price forecast, the firm said: “Despite a promising start to the year, the UK construction sector is contending with renewed volatility, as the Iran conflict drives up energy and material prices and introduces fresh uncertainty to supply chains.

“Even with the [recent peace deal], disruption to energy markets is expected to continue throughout 2026.”

It said that as a result it had increased its tender price forecast by 1% with the private sector range coming in at between 1% and 4% and public sector running at between 2% and 5% this year.

It added that some builders were taking on risk to make sure order books remained full. It added: “Contractors focused on the private sector are increasingly absorbing price risk in their bids in order to secure critical workload, a strategy that may temporarily mask the full impact of rising costs.”

The report also said: “While some regulated sectors remain robust, the slow pace of implementation for key reforms - including streamlined planning and accelerated power connections - risks undermining momentum across the industry.”

The firm’s head of strategic research and insight Simon Rawlinson added: “The UK construction sector is navigating a highly uncertain landscape, as inflation, energy volatility, and regulatory change converge.

“Contractors and clients are demonstrating resilience, but sustained recovery will depend on prompt government action and continued reform. The outlook remains cautious as the industry adapts to new risks and prepares for further change.”

Yesterday Currie & Brown said construction costs looked set to head upwards despite the recent US-Iran peace deal.

The consultant said steel prices could increase by up to 9.1% by September under a higher oil price scenario, while copper could rise by 5.5% and aluminium by as much as 12.4%.

It said demand for the materials was particularly strong in the data centre and retrofit markets meaning data centre construction costs could increase by up to 6.8%, while hotel projects could see costs rise by around 7%.