Builders’ Merchants Market: Q2 Trends, Shifts & Signals
The market was hoping that confidence would start to build in Q2 but instead, demand continued to weaken. The war in the Middle East is causing further uncertainty as well as energy and fuel price rises, while UK material prices are going through the roof. Here, MRA has summarised important events and updates for Q2.
Difficult Trading Conditions
The Construction Leadership Council’s Material Supply Chain Group (MSCG) reiterated that the outlook for construction remained bleak. The conflict in the Middle East affected investor and business confidence in Q2 and, together with higher energy and fuel prices, it increased inflationary pressures and reduced expectations of interest rate cuts, creating a more challenging trading environment.
Bank of England data shows that in May 2026, mortgage approvals fell to their lowest level since December 2023. This indicated a weakening pipeline of housing transactions because of higher borrowing costs and economic uncertainty. Higher financing costs are expected to reduce demand for new housing throughout 2026.
The S&P Global UK Construction Purchasing Managers’ Index™ (PMI) report indicated a steep decline in UK construction output in May 2026. Construction output fell at the fastest pace for six years, with residential construction seeing the largest falls, but commercial activity has also softened since April. At 38.2 in May 2026, the headline was below the neutral 50.0 threshold for the 17th month running.
Data from the government’s Insolvency Service show that construction firms – merchants’ key customers – are still seeing high insolvency levels. Numbers have fallen from their peak in 2023 but are still high above pre-pandemic levels. Between January and May 2026, there were 1,763 construction related insolvencies. The largest proportion were specialist contractors.
The latest monthly figures from the Builders Merchant Building Index (BMBI), published in July, show that like-for-like value sales in May 2026 were only -0.6% lower than in May 2025. However, like-for-like volume sales were down -5.8% year-on-year, while prices were up +6.1%. The BMBI report for Q2 2026 is out in August and will tell the full story.
Rising Prices
The MSCG said estimates indicated routine January supplier price increases added around 2.2% to costs and subsequent increases linked to higher fuel and energy prices has added another 2.9%, giving an effective increase of around 5.1% in building material costs year-on-year. While many merchants are currently absorbing these costs, this was not going to be sustainable indefinitely, and domestic haulage fuel surcharges of 5% to 10% were reported.
According to the MSCG, the highest price increases are for steel, bricks, cement and concrete, glass, insulation, bitumen and PVC products, but says no product category that has avoided signs of either current or forthcoming price increases. Imported products are affected by rising logistics and global input costs.
Further increases were expected from 1 July, and the inflationary pressures caused by the Middle East conflict will likely persist for some months after hostilities cease.
Affordability is a fundamental issue restricting the market. Consumers’ capacity to absorb price increases is falling, with mortgage rates increasing, meaning RMI projects and house purchases will be delayed or cancelled. Price rises are also impacting the delivery of public sector projects to agreed budgets.
Subdued Corporate Activity
Activity on the M&A front was very low during the first six months of the year. Some regional merchants acquired the odd branch, but no major deals were announced. Merchant groups were also cautious when it came to branch network expansion. Even MKM, which had continued to grow its branch network at a rate of around one branch per month did not announce any new branches during Q2.
Thankfully, there have been no further major insolvencies or losses in the merchant market since National Timber Group fell into administration in November 2025. During Q2, businesses have been focused on operational efficiencies and on refining their product ranges, e-commerce solutions and delivery models.
Delayed Recovery
The Builders Merchants Federation released its Summer Industry Forecast in June. It highlighted a tough first half of 2026 for merchants. The BMF downgraded its baseline forecast for 2026 from +2.3% to -1.8%, due to geopolitical uncertainty, subdued consumer confidence and softer economic conditions.
It now looks likely that real recovery in the merchants’ market will be delayed beyond 2026. But recovery requires stability and the current situation, with wars continuing, the constant threat of tariffs, the uncertainty regarding energy supply and a new prime minister, is not helping.
Confidence needs to improve among businesses, investors and consumers, but there is a long way to go. A recent survey by MRA Reports showed that a net -30% of builders’ merchants were more confident in the market in Q2 2026 than they were last year. Meaning that on the whole, merchants were much less confident in the market this year than in 2025. The figure represented a significant drop on Q1 2026.
Further details are available in the Builders’ Merchants Q2 2026 Market Update Report at https://www.mra-reports.co.uk.
