Our last detailed report on the UK construction industry in early November 2024 showed that its finances appeared to be stable but at a relatively low base line. The average financial rating remained at 42 out of 100, and 35% of companies stayed at heightened risk of insolvency. On the other hand, debt was rising, gearing increasing and the percentage of contractors with negative working capital had gone up since January 2024.

We noted then that the sector had many issues to deal with, not least the capacity issues it could face if the government implemented its promises on sharply increased housing and infrastructure spending.

The sentiment last November was that 2024 was turning out to be a challenging year, but that 2025 might be better. Four months on, 2024 was still disappointing but better than some feared, but 2025 has not started well.

What was the outcome for 2024?

Construction output increased by 0.4% in 2024 compared with 2023 according to the latest data from the Office for National Statistics. The largest increases were seen in repair and maintenance (R&M) output, with public housing output in the R&M sector up by 14.2%. In new work, positive growth was only seen in the ‘public other’ sector, which includes education and health. Total new housing work was down 5.7%.

Analysis by construction consultants Glenigan in their January 2025 Construction Review revealed that construction projects started in 2024 were 20% above 2023 levels in value terms. On the downside, main contract awards fell 4% in 2024 reflecting caution among developers. Underlying (contracts under £100m) awards decreased by 5%, while major projects also saw a 4% drop compared to 2023. Similarly, detailed planning approvals were down by 19% overall, with major projects hit hardest at a 34% decline. Underlying approvals dropped by 6%.

Early indications for 2025

Output

The sector has just gone through its worst month for almost five years. The all-important and well-respected S&P Global Purchasing Managers’ Index (PMI) sank to a score of 44.6, its lowest reading since May 2020 in the time of pandemic lockdowns. This indicates that construction output fell for a second consecutive month, with the speed of decline accelerating. January’s score was 48.1. Any reading below 50 indicates shrinking activity levels.

The figure of 39.3 for residential building showed a fifth consecutive monthly drop and was the weakest-performing area of construction activity. Aside from the pandemic, the rate of decline across the whole sector was the fastest since early 2009 at the height of the global financial crisis. Factors mentioned by respondents included weak demand conditions, the impact of high borrowing costs and a lack of new work to replace completed projects.

Civil engineering activity at 39.5 also registered a steep decline in February and was the lowest since October 2020. Commercial construction displayed a higher degree of resilience, but at 49.0 output levels are still falling.

Business failures

Overall construction failures fell in 2024. The total for the year was 4,032 for England & Wales, down 8% compared to 4,369 in 2023. Nevertheless, the construction sector represents 17% of all insolvencies, despite only creating 6.4% of total UK GDP.

But in an interesting development, research by the credit agency, Creditsafe has revealed a sudden and sharp rise in the number of attempted business rescues via Administrations of construction businesses. They were up from 10 Administrations in January 2025 to 32 in February, the highest monthly number since November 2023. Most of these Administrations were of very small businesses, with 75% of them having four or fewer employees. Whilst it’s positive to see more rescue attempts, this data confirms the warning we gave in our November sector report that the greatest financial vulnerability was heavily focussed among the smallest contractors.

What are the prospects for the rest of 2025?

Despite the poor PMI results for February, there remains some optimism about the short-term future. Glenigan is predicting a positive outcome, based on a wide range of potential upsides in various parts of the industry, in particular increased government and household spending. Another construction consultancy, Arcadis suggests the industry reached a turning point in the last quarter of 2024. Inevitably, S&P Global sees its latest PMI data as a reason for caution and concern, especially against the backdrop of so many uncertainties about the UK economy. Time will tell which of these experts has called it right.

As an advisory firm, we are here to provide independent assistance to those with business challenges and opportunities who might be considering professional advice. If you would like to speak to one of our Partners, they can discuss options with you. We have 14 offices nationwide and by contacting us on 020 3995 6380, you will be able to receive immediate assistance from our Partner-led team.