Sharp rise in ‘critical’ distress for construction firms as Budget looms

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  Posted by: electime      3rd November 2025

  • ‘Critical’ distress in Construction sector has soared 70.2 per cent year-on-year in Q3 2025 to 7,361
  • Number of construction firms experiencing ‘significant’ distress rises to 103,551 (+14.6 per cent YOY Q3 2025)
  • Hardest hit in the past year were companies delivering ‘Specialised design activities’ (+23.5 Q3 2025), ‘Development of building projects’ (+23.17 per cent Q3 2025), ‘Plumbing, heat and air-conditioning installation’ (+17 per cent Q3 2025), Electrical installation (+16.1 per cent Q3 2025) and Construction of domestic buildings (+9.9 per cent Q3 2025).
  • UK-wide, 726,594 businesses reported significant financial distress during Q3 2025, a 14.8 per cent annual increase, while businesses in ‘critical’ financial distress surged 78.0 per cent year-on-year, with 55,530 companies affected

The number of UK construction companies in ‘critical’ distress has soared by 70.2 per cent in the last year to 7,361, according to the latest figures from Begbies Traynor’s ‘Red Flag Alert’, which monitors the financial health of UK companies.

Analysis of the data has also shown the number of construction firms experiencing ‘significant’ distress has risen year-on-year to 103,551 (+14.6 per cent Q3 2025), despite only rising 1.2 per cent since last quarter.

After some signs of improvement in Q1, this latest research also shows a noticeable decline in the health of the UK economy in the second quarter of 2025.

The areas of the industry hit hardest by ‘significant’ distress in the past year were companies delivering ‘Specialised design activities’ (+23.5 Q3 2025 – 6,799), ‘Development of building projects’ (+23.17 per cent Q3 2025 – 15,258), ‘Plumbing, heat and air-conditioning installation’ (+17 per cent Q3 2025 – 6,971), ‘Electrical installation’ (+16.1 per cent Q3 2025 – 7,247) and Construction of domestic buildings (+9.9 per cent Q3 2025 – 11,742).

However, despite an annual rise, the number of companies experiencing ‘significant’ distress decreased Q3 2025 for ‘Plumbing, heat and air-conditioning installation’ (-4.3 per cent Q2-3 2025 – down from 7,282), Electrical installation (-4.3 per cent Q2-3 2025 – down from 7,574) and Construction of domestic buildings (-4.5 per cent Q3 2025 – down from 12,295).

Across the UK, 726,594 businesses reported ‘significant’ financial distress during Q3 2025, a 14.8 per cent annual increase, while businesses in ‘critical’ financial distress surged 78.0 per centyear-on-year, with 55,530 companies affected.

Only four of 22 industries saw a year-on-year reduction in ‘significant’ distress, including Printing and Packaging (-8.1 per cent, Q3 2025 – 1,971), Industrial Transportation and Logistics (-3 per cent, Q3 2025 – 16,029), Food and Drug Retailers (-6.8 per cent, Q3 2025 – 17,959) and Bars and Restaurants (-1.4 per cent, Q3 2025 – 17,971).

Almost all sectors (21 of the 22) tracked by business intelligence platform Red Flag Alert experienced an increase in ‘critical’ financial distress versus Q2 2024.

Julie Palmer, Managing Partner at Begbies Traynor, said: “As the number of businesses in ‘Critical’ distress continues to soar and unemployment figures look to be on the rise, boardrooms across the UK need this next budget to release pressure and uncertainty from their financial outlook. The construction industry is no exception, with tricky economic climate, rising costs, skills gaps and soaring demand continuing to put pressure on businesses of all sizes. Whilst there are some larger players continuing to grow, many in the SME space are close to the wire and will have to seek restructure, refinance or an exit.

“The other side of Government action affecting business is its drive to recover unpaid taxes. It seems to have taken the view that for too long HMRC has been the lender of choice for some, and whilst its strategy of chasing unpaid business taxes will see it recover debt, it may also put down many businesses with excess debt in the process.

“In this climate there will be restructuring, just as much as there will be opportunities for larger companies to give the ideas and assets of businesses that perish a second chance through acquisition and rescue. The next month is crucial for the UK economy and construction industry. To carry out work, deliver jobs, ideas, productivity and growth there needs to be a healthy balance of small, medium and large companies. Businesses across the economy need to see confidence improve – this Budget is crucial.”