What is in store for the construction sector in the second half of 2025?

The latest release of the Business Distress Index for Q1 2025 shows that the health of the construction sector has been slowly waning, with more sectors experiencing trading disruption due to the weakening state of the economy, restrained investor appetite and reduced consumer spending.

The index, published by Real Business Rescue, showed that the number of construction companies in critical financial distress was 6,367 in Q1 2025, compared with 6,141 in Q1 2024, a modest 4% increase, and the number in significant financial distress was 86,312, compared with 83,559 in Q1 2024, up 3%. So, what does this all mean for the construction industry as we had into the second half of the year?

Sector	Q1 2025	Q1 2024	% Change
Support Services	6,655	5,795	15%
Real Estate & Property Services	6,480	5,396	20%
Construction	6,367	6,141	4%

While the number of construction companies in critical financial distress increased slightly, construction dropped by two positions on the league table as more companies in support services and real estate and property services entered financial difficulty. This shows that the playing field is levelling as economic conditions grow universally weaker.

A weakening marketplace

However, the marketplace for British construction continues to weaken as the sector faces myriad challenges including ongoing economic uncertainty, labour shortages, regulatory challenges, the late payment epidemic and tax rises unveiled in the Autumn Budget.

US tariffs

The newly introduced US tariffs will put a strain on export-heavy construction companies operating in US markets, or indirectly through supply chain price rises. While the ‘Liberation Day’ tariffs unveiled by the US President, Donald Trump, came down hard on British steel and aluminium, the construction sector breathed a sigh as the tariff was entirely removed later.

However, as neighbouring sectors absorb rising costs due to US tariffs, the construction sector will undoubtedly feel the ripple effect.

Widespread late payments

The construction industry was already notorious for late payments and poor payment practices are widespread. Now, as construction companies start shouldering a heavier tax burden this fiscal year, the impact of late payments could further increase the risk of insolvency. With more than 6,000 construction companies in critical financial distress in Q1, late payments could deliver a final blow to businesses facing already uncertain futures.

Labour challenges

The construction industry has yet to tackle the skilled labour shortage, which is driving up labour costs. Employers must also factor in higher labour costs due to the rise in Employers’ National Insurance Contributions and National Living Wage following the Autumn Budget announcement. The skilled labour shortage means posts are becoming harder to fill as workers retire, leading to delayed projects and added pressure on business owners.

With business recovery fresh on the mind of construction companies, what shape will corporate recovery take for companies with concerns about ongoing viability?

Business restructuring

Business rescue and recovery is initiated by a licenced insolvency practitioner and can take many forms, from tailored solutions to formal rescue procedures. Here are some of the ways business recovery may be approached by an insolvency practitioner:

Company Voluntary Arrangement (CVA) – A company voluntary arrangement is a restructuring process that provides a gateway to creditor negotiations. A CVA provides breathing space by spreading payments into affordable instalments over a fixed period.

Streamlining – The business restructuring umbrella covers a variety of different procedures, including streamlining, to build a leaner business. This involves auditing company operations to identify inefficiencies and simplifying overly complex structures responsible for causing unnecessary financial wastage.

Company administration – This is a formal recovery procedure which involves devising a plan to rescue viable parts of a business through restructuring or a successful sale.

Business finance – If a finance boost can remove growth restrictions and set the business back on track, providing that it is affordable over the long term, it can help restore viability.

Company restructuring is a valuable tool for businesses. As the vitality of the construction industry fluctuates, company directors must remain proactive and actively watch out for the warning signs of insolvency.