The latest figures suggest things are improving, but nobody should relax just yet.

The ICAEW’s Business Confidence Monitor (BCM) is a quarterly survey of around 1,000 business leaders and one of the best snapshots of how UK firms are feeling. In this article, we look at what the Q3 2026 results say about construction and property, and how energy costs, interest rates, housing policy and labour costs could affect your business over the next year.

Business confidence has rebounded, but the recovery is fragile

The latest BCM gives UK businesses some welcome encouragement. After falling to a near four-year low in Q2, the national Business Confidence Index rebounded sharply from -14.6 to -0.5 in Q3 2026. Confidence is still marginally negative and has now been below zero for seven quarters in a row. Even so, businesses have proved more resilient than many expected after the disruption caused by the conflict in the Middle East.
It’s worth remembering that confidence was positive in late August (+7.3) before slipping back during September, when tensions involving Iran pushed up oil and gas prices. That shows how quickly sentiment can swing.

Confidence rose in every sector, but the recovery is uneven. IT & Communications, Manufacturing & Engineering and Business Services have all returned to positive territory. Property and Construction remain among the weakest.

Construction confidence improved from -15.5 to -8.2, a significant recovery from Q2 and a sign that firms are adapting to a challenging trading environment. The sector is still firmly in negative territory, though, reflecting concerns about costs, future workloads, labour availability and wider uncertainty.

What stands out is that confidence improved despite a backdrop that would normally have dragged it down. Fuel prices remain high, global tensions continue, and the prospect of higher interest rates is back. Rather than a return to strong growth, this suggests businesses have become more resilient and more used to operating in a higher-cost environment.

How the conflict in the Middle East is still affecting construction costs

The UK construction sector is a long way from the Middle East, but the economic effects are hard to ignore.

The conflict has continued to disrupt energy markets, causing volatile oil and gas prices throughout the year. Some cost pressures eased during the quarter, but energy remains one of the biggest challenges for UK businesses. Construction firms feel it through fuel, transport and supply chain costs.

Brent crude oil rose above $100 per barrel in September, and higher petrol and diesel prices pushed UK inflation back up to 3.1% in August. This matters for construction because moving materials, running plant and machinery, and getting people to site all depend heavily on fuel.

Many contractors are now much more disciplined about managing costs and protecting margins than they were during the inflation shock of 2022 and 2023. Even so, continued volatility in energy markets is a risk to project viability and profitability going into 2027.

Interest rate expectations have shifted again

Only a few months ago, markets were expecting further interest rate cuts. That outlook is now much less certain.

The Bank of England held base rate at 3.75% during the quarter, but has indicated that sustained energy-driven inflation could lead to future rises. It’s a reminder that the fight against inflation may not be over.

For developers, investors and property businesses, borrowing costs remain a major factor in decisions. The hope that borrowing would gradually get cheaper has faded, so many businesses are having to revisit their funding assumptions and check whether projects still stack up.

Higher interest rates affect more than development finance. They also influence what buyers can afford, housing demand and investment decisions across the wider property market.

Is the housing market holding up better than expected?

The housing market continues to send mixed signals.

Transaction volumes are below what many expected at the start of the year, and higher mortgage rates have reduced affordability for many buyers. Hopes of further rate cuts have largely disappeared following rising fuel and energy prices, and recent Bank of England commentary suggests policymakers are still worried about inflation.

Like the wider economy, though, the housing market has been more resilient than many predicted. Demand is supported by a long-standing shortage of homes, population growth and a lack of available stock in many areas.

House price growth has slowed and activity is subdued compared with the post-pandemic market, but there is little sign of the widespread correction some commentators forecast earlier in the year. The challenge is affordability rather than demand. Buyers still want to move, but many are taking longer to commit while borrowing costs stay high.

This weakness in residential activity helps explain why Property is the least confident sector in the BCM at -14.4, while Construction remains among the weakest at -8.2.

Government housebuilding plans: an opportunity for construction firms

Prime Minister Andy Burnham’s commitment to increase housing delivery, and to speed up the building of affordable and council homes, will be welcomed across much of the construction sector.

Few would argue against the need for more homes. The UK has had a housing shortage for decades, and any policy that increases the number of homes built should create opportunities for developers, contractors, subcontractors and the wider supply chain. More public sector housebuilding could also give construction businesses some stability while private development remains subdued.

The obvious question is how it will be paid for. Large council housing programmes need substantial public funding, infrastructure investment and local authority resources. The long-term economic and social benefits may justify the cost, but there are still big questions about how these ambitions will be financed and delivered.

Low-deposit mortgages: will history repeat itself?

Alongside the housebuilding ambitions, government support for schemes allowing home ownership with deposits as low as 2.5% has sparked debate.

Supporters say these measures tackle one of the biggest barriers for first-time buyers: saving a meaningful deposit.

Critics point to the experience of Help to Buy. It boosted transactions and supported housing delivery, but many argue it also pushed up prices, particularly for new-build homes. The concern is simple: if buyers get more purchasing power without a matching increase in supply, prices rise.

Success will depend on supply keeping pace with demand. If the government’s housebuilding targets are met, these schemes could widen access to home ownership without making affordability worse. If supply falls short, the main beneficiary may be new-build pricing rather than first-time buyers.

Labour costs and regulation continue to bite

Beyond energy and borrowing costs, construction businesses face other operational pressures.

The BCM found that 56% of construction businesses see labour costs as a growing challenge, while regulation and tax concerns remain high. Skills shortages continue to affect parts of the sector, and higher employment costs are feeding into tender prices and project viability.

On a more positive note, construction firms are among the most optimistic employers, forecasting employment growth of 2.7% over the next 12 months. Many see opportunities ahead and are willing to invest in capacity where it makes sense.

What this means for your business: key takeaways

The latest BCM paints a more optimistic picture than many would have expected earlier this year. Business confidence has recovered significantly and the UK economy has demonstrated a degree of resilience despite geopolitical instability, rising fuel prices and persistent inflationary pressures.

For construction businesses, confidence remains below the national average, but the direction of travel is encouraging. The sector’s confidence score improved materially during the quarter and firms continue to forecast some of the strongest employment growth in the economy, suggesting many businesses remain busy despite ongoing concerns around costs and profitability.

The overriding message from this quarter’s BCM is therefore not one of confidence restored, but confidence stabilizing and caution remains justified. Businesses have shown remarkable resilience during an exceptionally uncertain period, and whilst a full recovery still feels some way off, the direction of travel is certainly more positive than it was only three months ago.

At Sumer, our Construction & Real Estate specialists support developers, landowners, investors and contractors with expert advice tailored to your business needs. If you’d like to discuss the challenges and opportunities ahead, get in touch with one of our business champions.

Source note: ICAEW Business Confidence Monitor, Q3 2026.