CFA Comments on the Middle East Conflict

By Richard Catt, CFA CEO

At the recent CPA AGM, Noble Francis set out the current economic outlook, which now has to be viewed through the lens of the evolving Middle East conflict and its emerging impact on energy markets, inflation and construction activity.
 
The messaging was heavily peppered with ‘it depends’, particularly on the duration of the conflict, the stability of any ceasefire, and how quickly global supply routes normalise. However, what is already clear is that energy is once again a primary concern.
 
For construction, this is already translating into renewed cost pressure. Energy-intensive materials, imported products, and logistics are seeing early indications of double-digit percentage price increases in some categories, with surcharges already being applied in parts of the supply chain. For flooring contractors and manufacturers, this is particularly relevant in adhesives, polymers, plastics, underlay systems, and imported finishes, as well as the obvious impact on transport and distribution costs.
 
The CPA also notes that inflationary pressures are likely to re-emerge more visibly in the second half of 2026, with the CPI already ticking up from 3.0% to 3.3% in March. While this is still well below the peaks seen in 2022, the direction of travel is now upward again, driven largely by energy.

This matters for our sector in three main ways.

First, cost inflation is returning at a time when pricing power remains limited. Most contractors and manufacturers have already absorbed significant cost increases over the past few years, and competitive tendering conditions remain tight. Passing through further increases from an already high position will be challenging, particularly on fixed-price or longer-term contracts.

Second, financing conditions are tightening. Markets are also no longer pricing in rate cuts this year, most now factoring in further increases. This will inevitably feed into housing affordability, project viability, and investor sentiment as we move further into the year.

Third, there is a timing effect. Much of the direct inflationary impact from energy and shipping shocks typically feeds through with a lag of several months. This means the full effect on materials pricing, subcontractor costs and project pipelines is unlikely to generally be felt until late Q2 and for flooring perhaps more realistically (because of where we sit in the construction process) Q3 and Q4 of 2026.

In housing, an often-quoted barometer, the CPA’s central message is increasingly cautious. Forward indicators suggest activity may hold up in the very near term due to existing mortgage approvals and forward sales, but the risk profile increases significantly through the second half of the year as higher mortgage costs, weaker sentiment, and rising build costs converge. Smaller housebuilders and specialist subcontractors remain the most exposed.

For flooring specifically, we tend to sit slightly downstream in the cycle, which means demand impacts may be delayed, but also potentially more prolonged. Once projects slow, we typically feel the effect later, and recovery often lags behind wider construction indicators. Despite this, there are still active areas of demand. Infrastructure, energy, data centres, healthcare and selected commercial refurbishment work continue to show resilience.

From a CFA perspective, the key message to members is one of realism rather than alarm. We are entering another period of volatility layered on top of already stretched cost bases and subdued confidence. The focus for most businesses will need to be on cashflow discipline, contract terms, escalation clauses, and early visibility of cost movements within supply chains. The CFA continues to provide support across contractual, legal and commercial areas, particularly where members are navigating cost escalation, disputes, or delayed projects. The full CPA economic report is available in the Members’ Area, along with wider sector analysis to help inform planning and tendering decisions.

Looking ahead, the CPA Spring Forecast (due in May) will provide a clearer view once more of how these assumptions are settling. However, at this stage, the balance of risk is clearly tilted towards higher inflation, tighter financial conditions, and a more uneven construction outlook through the remainder of 2026.

As ever, while the picture is uncertain, activity continues and the focus and challenge for our sector remains on staying competitive, protecting margins where possible, and maintaining a steady flow of secured work. CFA will be firmly behind these objectives.

For more general information about the impact of the Middle East Conflict on the construction sector, see the latest update from the CLC Material Supply Chain Group.