IN Brief:
- The CPA has warned that oil above $100 a barrel risks upsetting the economic assumptions behind the Spring Forecast.
- Higher fuel and energy costs would feed into transport, petrochemical-based products, and wider materials pricing.
- Any fresh squeeze on inflation, borrowing costs, or household energy support would tighten an already narrow fiscal position.
The Construction Products Association has warned that a renewed oil shock could quickly unsettle the fragile recovery conditions the industry had been hoping for in 2026. With crude pushing above $100 a barrel, the immediate concern is not only energy bills, but the knock-on effect on inflation, borrowing costs, and household confidence at a point when the housing market had only just begun to show signs of stabilising.
That warning lands against a weak macroeconomic backdrop. The Office for Budget Responsibility cut its UK growth forecast for 2026 to 1.1% in the Spring Forecast, while the Bank of England held Bank Rate at 3.75% in February. Until the latest Middle East escalation, markets had been leaning toward a further easing cycle this year. The oil move has changed that tone sharply, with expectations for rate cuts pared back as investors factor in the risk of another inflationary pulse.
For construction, the transmission mechanism is direct. Diesel costs feed into haulage, plant operation, and distribution. Oil-linked and gas-linked inputs also affect a wide spread of building products, from asphalt and bitumen through to plastics, membranes, insulation components, pipe systems, and packaging. Even where manufacturers are not heavily exposed to crude itself, sustained volatility raises transport, utilities, and working-capital costs across the supply chain.
That is particularly awkward for a market still trying to rebuild housing demand. Mortgage pricing had begun to improve as rates drifted lower late last year, helping transactions and buyer sentiment recover from a difficult 2025. If higher energy prices keep inflation elevated, lenders are less likely to pass through cheaper borrowing, and that slows the pace at which private housing activity can recover. The impact would not be confined to housebuilding. Repair, maintenance, civils, and fit-out work all carry exposure to transport-intensive distribution networks and materials pricing.
There is also a fiscal angle. The government’s latest numbers leave only limited room for manoeuvre against its own rules. If energy prices remain high, ministers could face pressure to shield households and businesses from higher bills, while also dealing with higher debt-servicing costs. In that environment, any deterioration in the public finances would reopen questions about whether spending cuts, delayed commitments, or fresh tax measures are required later in the year.
For product manufacturers, contractors, and merchants, the issue now is duration rather than the size of a single trading-day spike. A short-lived jump would be disruptive but manageable. A prolonged period of oil above $100 would be more serious, because it would start to reset inflation expectations, feed back into financing costs, and place renewed upward pressure on input prices just as the industry is trying to regain momentum.
