Market characteristics
UK construction GDP increased to £38bn in Q3 2025, reaching an all-time high. It had averaged £33.3bn per quarter between 1990 and 2024. It now represents between 6% and 7% of overall GDP.
According to the Building Cost Information Service the industry employed some 2.05m people in Q3 2025, equivalent to some 7% of the labour force but 1.6% fewer than a year previously. This compares with the pre-pandemic level of 2.3m in Q1 2020 and the peak over the past twenty-five years of 2.6m in Q3 2008, just as the global financial crisis started.
The total assets employed in construction are now £196bn, with a total net worth of £89bn. The sector borrows £26bn overall.
Current market conditions
Construction sector statistics published by consultants, Glenigan published in December 2025 and covering activity for the year to November 2025 highlight a number of key trends:
- Detailed planning approvals are down 26% overall year-on-year, with the major impact on smaller contracts under £100m, which are down 38%.
- Main contract awards (over £100m) have dropped by 26%, spread evenly across all contract sizes.
- Project starts were down 29%, predominantly on main contracts.
Recent figures from the Office for National Statistics for construction sector GDP have revealed a largely positive picture, with modest quarter-on-quarter growth every month for the past year, except for small falls in February 2025 (down 0.1%) and October 2025 (down 0.3%).
Financial risk profile
We have once again used the database maintained by the financial health monitoring specialists, Company Watch, to analyse the latest published accounts of each of the 241,585 companies registered at Companies House as operating in the sector. We were able to examine the most up-to-date financial data available and compare this with what we had found when we last looked at the construction industry in June 2025.
It should be noted that because of the delays in the filing deadlines at Companies House, the latest data mainly covers financial statements for trading periods ending at the end of 2024 or during 2025.
A summary of our findings can be seen here.
The headlines reveal little significant change in the risk profile of the sector in the past six months, indicating that its financial health has largely stabilised after the damage inflicted by the pandemic, but it has deteriorated marginally in some key respects and it remains below par overall.
- The average Company Watch health rating (H-Score®) is stable at 41 out of a maximum of 100.
- The percentage of companies in the Company Watch warning area is static too at 36%.
- Total assets have fallen by 5% since May 2025 from £206bn to £196bn now, despite a slight increase in the number of companies.
- Total borrowings have been reduced by £0.9bn.
- Total net worth has dropped by 7% to £89.4bn.
- The number of ‘zombie’ companies with negative balance sheets is steady at 6% (15,074). Their combined shortfalls total £3.5bn.
- The number of companies with negative working capital is also unchanged at 10% (24,893). Their working capital deficits total £6.3bn.
We look at these key statistics headlined in more detail below.
Health score warning area
Well over a third of companies (36% or 88,022) of the companies were in the Company Watch health score warning area with an H-Score of 25 or less out of a maximum of a hundred. This percentage is unchanged since May 2025, when there were 85,084 (still 36%) in the warning area. Statistics for the past twenty-five years confirm that at least one in four of these businesses will fail or need a major financial restructuring during the next three years.
Debt levels
Overall borrowings have fallen from £27bn in May 2025 to £25.9bn in our latest research. Within this overall figure, debt has fallen slightly in the smaller size categories, but the bulk of the reduction has been achieved by the largest construction companies with assets over £1m.
‘Zombie’ companies
6% (15,074) of construction companies are zombies, with negative balance sheets where liabilities exceed assets by at least £20,000. Their combined balance sheet deficits add up to £3.5bn. This position is largely unchanged since May 2025.
Negative Working Capital
We also looked at the working capital position of those construction businesses where ‘quick’ current assets such as receivables, cash, contract value and work in progress were lower than their short-term liabilities. We found that 10% (24,893) of the companies had negative working capital of at least a de minimis figure of £20,000 with combined deficits of £6.3bn. This is not a healthy statistic for the industry, indicating significant potential for short-term financial pressure.
The smaller the contractor, the bigger the financial risk
As with our recent reviews of the finances of other industry sectors, there is a major discrepancy between larger businesses and smaller, less well-capitalised contractors. To confirm this, we broke down our analysis into six size ranges according to total assets per company. The outcomes for the various size categories are set out in the summary of our results.
- The contrast between the major players and small businesses is striking.
- The average H-Score for construction entities with assets of more than £1m is 59 out of 100, against the sector average of 41.
- For the very smallest businesses, the average is almost halved to only 32.
The fragmentation and financial fragility of the sector is also apparent from the startling statistic that almost half of construction companies (114,510) have total assets of £50k or less. More than one in ten (27,647) have total assets of £10k or less. Out of these small companies with assets of £50k or less, a deeply worrying 45% (52,092) are in the Company Watch warning area with an H-Score of 25 or less out of 100.
Business failures
Achieving financial stability can be tough for construction businesses. Year in and year out, in good times and bad, between a fifth and a sixth of all UK insolvencies have been construction companies, in stark contrast to its far lower 6%-7% share of GDP. In the twelve months to October 2025, there were 3,973 construction company insolvencies in England and Wales, equivalent to 16% of the total business failures for the period.
This is welcome improvement from 19% in 2022, but unfortunately this reflects problems elsewhere in other sectors like hospitality and retail, which were even more badly affected by the pandemic and subsequent labour shortages and cost inflation, rather than any reduction in the financial vulnerability of the construction sector.
Challenges for construction in 2026 and beyond
The industry faces difficult and persistent issues as it moves into 2026. including skyrocketing costs (materials, wages), a severe skilled labour shortage, tighter regulations (safety, green standards), economic uncertainty, and evolving client demands, requiring greater investment in technology, upskilling, and resilient supply chains to navigate squeezed margins and project viability risks.
Among these threats is one, which is rarely discussed outside the industry but is shaping up to be an existential danger to the sector’s capacity to meet demand. For a change, this is not about funding, profitability or suicide bidding. It’s not caused by overall labour shortages. Nor is the impact of AI eliminating entry level jobs to blame, pernicious as that will be for workforce planning in the medium and longer term. Rather, it’s the result of past recruitment and training failures and it’s focussed within a specific part of the construction workforce.
One commentator described this aptly as the problem of the ‘missing middle’ workforce. The government continues to invest heavily in apprenticeships and training for young people to start a career in construction. The question is whether there is also sufficient focus on supporting the more experienced middle management resources to enable construction firms to deliver on constantly evolving, ever more complex and highly regulated requirements on building safety, energy performance, and environmental impact.
This requires that most precious of commodities, experience. It could become a significant issue, especially for small contractors as bigger firms outbid them for talent as they look to attract the middle managers, technicians and other professionals they need to ensure compliance in this more demanding commercial environment.
If you would like to read our previous construction reports, click here.
If you would like to discuss any of the points in the report or believe you have been affected by any of these issues, you can speak to one of our Directors or Partners who can discuss options with you.
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