In our June 2025 Construction Sector Report, we can see that Construction GDP has been static in recent years. It represents some 6% of overall GDP. Output in 2024 was £142.2bn, almost exactly the same as the figure of £142.5 for 2023 and only 2.9% higher than in 2022, when activity had still been impacted negatively in Q1 by the final phase of the pandemic. As we go into 2025, construction GDP remains constrained. Q1 produced £35.7bn, just as Q4 2024 did.
The industry employed some 2.1m people in Q3 2024, equivalent to some 7% of the labour force. 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 employment trend can be seen from statistics provided by Statista.
The total assets employed in construction are now £206bn, with a total net worth of £96bn. The sector borrows £27bn overall.
Current market conditions
The latest construction sector statistics published by consultants, Glenigan covering activity up to April 2025 highlight three key trends:
- Detailed planning approvals are up 52% year-on-year and 51% on the previous three months, but this outcome has been heavily influenced by the Lower Thames Crossing project.
- Smaller projects (under £100m value) showed significant falls.
- Main contract awards are down 10% year-on-year but 29% lower than in the previous three months.
- The falls are evenly spread between larger and smaller contracts.
- Project starts are 17% lower year-on-year but 33% higher than the previous three months.
- Larger projects (more than £100m value) dominate the quarter-on-quarter growth.
In terms of major sub-sectors, the picture is as follows:
Housing
Starts are up both year-on-year and quarter-on-quarter, but worryingly, planning approvals are sharply down, despite the government’s determination to force through the delivery of its five-year target of building 1.5m new homes.
Industrial
Poor client confidence, especially among manufacturers has driven contract awards down well below comparisons.
Offices
Every aspect is well down, with investment in data centres the only bright spot.
Retail
Increased cost pressures including higher labour costs and an overhang of vacant retail premises is deterring investment in retail construction.
Hotel & leisure
Hospitality is facing similar cost pressures to retail, driving down planning approvals and contract awards.
Health, education and community
There is no tangible sign yet that the government’s commitment to growing the economy through public investment is coming through into increased construction activity in these fields.
Civil engineering
Comparisons here for planning approvals are hugely skewed by the £10bn Lower Thames Crossing, but project starts are down by almost half year-on-year.
Looking at regional variances, the best performers in terms of the overall Glenigan Index are the East Midlands (up 45% quarter-on-quarter) and the South West (29% ahead), while the greatest laggards are the North West (down 20%) and London (11% lower).
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 238,446 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 October 2024. 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 2023 or during 2024.
A summary of our findings can be seen here.
The headline findings reveal little significant change in the risk profile of the sector in the past eight 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 overall it remains below par.
- The average Company Watch health rating (H-Score®) is has dropped from 42 out of a maximum of 100 last October to only 41.
- Surprisingly, this fall is confined to the largest contractors, rather than the SME segment of the market.
- The number of companies in the Company Watch warning area has risen to 36% from 35% in October 2024.
- Total assets have fallen by 5% since October 2024 from £217bn to £206bn now, despite a 1% increase in the number of companies.
- Total borrowings have been reduced by £2.5bn since October 2024.
- Total net worth has improved by £2.3bn.
- The number of ‘zombie’ companies with negative balance sheets is steady at 6% (15,043). Their combined shortfalls are £3.2bn.
- The number of companies with negative working capital is also unchanged at 10% (24,049). Their working capital deficits total £6.4bn.
Key statistics in more detail
Company Watch warning area
Well over a third of companies (36% or 85,804) of the companies were in the Company Watch warning area with an H-Score of 25 or less out of a maximum of a hundred. These numbers have deteriorated since October 2024, when there were 82,050 zombies (35%) 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 £29.5bn in October 2024 to £27bn 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% (15,043) 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 £3.2bn. This position is virtually unchanged since October 2024.
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% (24,409) of the companies had negative working capital of at least our de minimis figure of £20,000 with a combined deficit of £6.4bn. 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 above.
The contrast between the major players and small businesses is striking. The average Company Watch H-Score for construction entities with assets of more than £1m is 60 out of a hundred, against the sector average of 42. But for the very smallest businesses, the average is almost halved at only 31.
The fragmentation and financial fragility of the sector is also apparent from the startling statistic that almost half of construction companies (112,602) have total assets of £50k or less. More than one in ten (27,174) have total assets of £10k or less. Out of these small companies with assets of £50k or less, a deeply worrying 45% (50,757) 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 elusive 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% share of GDP. In the twelve months to March 2025, there were 4,111 construction company insolvencies in the UK, 17% 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 2025 and beyond
In addition to the sector’s perennial problems with excess competition, leading to suicide bidding and wafer thing profit margins, there are a number of newer major issues caused by current geopolitics and national politics.
Lack of business confidence
The severe turbulence to world trade currently being caused by the tariff war being pursued by the USA has undermined business confidence. Understandably, the high levels of uncertainty are prompting businesses to hit the ‘pause’ or ‘cancel’ button on investment projects, with immediate consequences for construction companies.
Labour shortages
The sector has long had a problem with an ageing demographic and growing skills gaps, made worse by the rapid advance of technology and especially AI into many aspects of the construction process. Now the UK government’s plans to further restrict immigration and in particular the proposal to require degree level qualifications threaten to make existing labour shortages even worse.
Supply chain issues
Construction companies have worked hard to overcome a succession of events, including the pandemic and the Ukraine war, which have introduced a high level of unpredictability into both the availability and the cost of materials. Now the USA tariff war is bringing back all of these problems.
Increasing creditor enforcement action
Company insolvency levels have come down significantly since the peaks seen in February and June 2024, but hidden beneath the overall figure is a worrying trend, which has seen Compulsory Liquidations (CWUs) initiated by creditor enforcement action rise steadily both in absolute and percentage terms.
CWUs are now running at 4,047 a year, 12% higher than a year ago and 47% up on April 2023. The latest figure is 16% of all insolvencies, compared to 13% in April 2024 and only 11% in April 2023. In the single month of April 2025, CWUs were 19% of all insolvencies.
As we have noted, construction has been the sector with the highest rate of business failure for decades and currently accounts for 17% of company insolvencies. But now its share of Winding Up Petitions issued (the start of the CWU process) has soared to 583 (28%) in Q1 2025. Of these, 230 Petitions were issued by HMRC, illustrating vividly the vital importance of staying on top of tax liabilities for struggling construction businesses.
What next for construction in 2025 and beyond?
The simple answer poses the most complex question. How can the owners and managers of construction companies possibly plan ahead, never mind find their way through the day-to-day fog of uncertainty, which currently plagues the industry, as it does the UK and the global economies?
So much of their destiny is in the hands of factors beyond their control, whether it is the actions of a capricious 47th President in the White House, the unpredictable potential side effects of a range of major conflicts around the world or a UK government battling to deal with parlous public finances.
This year has started with a noticeably patchy performance across the various construction sub-sectors. Calling the outcome even through to the end of 2025 is near impossible, never mind on into 2026. What is clear is that this is a time for financial discipline, heightened risk awareness and prudence, especially against a background of capacity constraints and with the obvious temptation to chase work and revenue to maintain market share and preserve reputations.
If you would like to read our previous reports about the construction sector, 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 Partners who can discuss options with you.
We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.