Begbies Traynor Group (BTG) found in that the number of construction businesses experiencing ‘critical’ distress had increased year-on-year by 46.1%
BTG’s Red Flag Alert report found that in Q4 2025, construction businesses reported increasing levels of distress. The number of companies that described their situation as ‘critical’ rose to 9,981.
The report also found 108, 213 construction firms in ‘significant’ distress- a 10.9% increase on last year.
Areas of the construction industry in the most ‘significant’ distress were:
- Companies delivering ‘Development of building projects’ (up 12.7% to 14,968),
- ‘Construction of Domestic Buildings’ (up 9.9% to 12,121),
- ‘Specialised design services’ (up 15% to 6,666).
Trades also reported struggles, with electrical installers and plumbing and HVAC all seeing increases of over 13% to their level of distress.
Red Flag Alert chief executive Richard West said: “Construction has been at the sharp end of this downturn for some time, but these results show that the pressure is intensifying rather than easing. In this environment, construction professionals cannot rely on historic relationships or gut feel alone.”
The skills shortage, lack of investment and backlogs could worsen construction’s downturn
BTG managing partner Julie Palmer said: “The construction industry and its supply chain may have held its breath for too long in the final quarter of 2025. The slowing of projects, subdued demand from clients and lack of confidence across the economy waiting for some relief from the budget has pushed companies close to the edge of collapse.
“Some large firms, house-builders and developers had a very strong 2025 but as the impact of stilted growth and subdued demand continues into this year, it will not only be the smaller and distressed businesses who are anxiously facing a challenging first quarter. Planning reforms and demand could help move the market, but as many have noted there is still a huge backlog and significant investment is needed to see a trickle down to smaller contractors. The longer that trickle down takes to reach them, the more likely it is that they leave the market. And drying up an already shallow pool of talent as more leave the industry could make it harder to build at scale.
“Rising minimum wage, unemployment, persistently high inflation, material costs and HMRC cracking down on unpaid tax will make it hard for businesses. However, if we’re looking for some positivity, there is possibility that this creates room for innovation and acquisition at the other end of the scale. The construction industry is resilient, and if those that remain can widen margins, win large public sector work and provide the houses and commercial office space of the future then there is a way forward.”
