Analysis of Begbies Traynor’s ‘Red Flag Alert’ has also shown the number of construction firms experiencing ‘significant’ distress has risen year-on-year to 103,551 (+14.6% Q3 2025), despite only rising 1.2% since last quarter.

After some signs of improvement in Q1, this latest research also shows a noticeable decline in the health of the UK economy in the second quarter of 2025.

The areas of the industry hit hardest by ‘significant’ distress in the past year were companies delivering ‘Specialised design activities’ (+23.5 Q3 2025 – 6,799), ‘Development of building projects’ (+23.17% Q3 2025 – 15,258), ‘Plumbing, heat and air-conditioning installation’ (+17% Q3 2025 – 6,971), ‘Electrical installation’ (+16.1% Q3 2025 – 7,247) and Construction of domestic buildings (+9.9% Q3 2025 – 11,742).

However, despite an annual rise, the number of companies experiencing ‘significant’ distress decreased Q3 2025 for ‘Plumbing, heat and air-conditioning installation’ (-4.3% Q2-3 2025 – down from 7,282), Electrical installation (-4.3% Q2-3 2025 – down from 7,574) and Construction of domestic buildings (-4.5% Q3 2025 – down from 12,295).

Across the UK, 726,594 businesses reported ‘significant’ financial distress during Q3 2025, a 14.8% annual increase, while businesses in ‘critical’ financial distress surged 78.0% year-on-year, with 55,530 companies affected.

Only four of 22 industries saw a year-on-year reduction in ‘significant’ distress, including Printing and Packaging (-8.1%, Q3 2025 – 1,971), Industrial Transportation and Logistics (-3%, Q3 2025 – 16,029), Food and Drug Retailers (-6.8%, Q3 2025 – 17,959) and Bars and Restaurants (-1.4%, Q3 2025 – 17,971).

Almost all sectors (21 of the 22) tracked by business intelligence platform Red Flag Alert experienced an increase in ‘critical’ financial distress versus Q2 2024.

Julie Palmer, managing partner at Begbies Traynor, said: “As the number of businesses in ‘Critical’ distress continues to soar and unemployment figures look to be on the rise, boardrooms across the UK need this next budget to release pressure and uncertainty from their financial outlook.

“The construction industry is no exception, with tricky economic climate, rising costs, skills gaps and soaring demand continuing to put pressure on businesses of all sizes. Whilst there are some larger players continuing to grow, many in the SME space are close to the wire and will have to seek restructure, refinance or an exit.

“The other side of Government action affecting business is its drive to recover unpaid taxes. It seems to have taken the view that for too long HMRC has been the lender of choice for some, and whilst its strategy of chasing unpaid business taxes will see it recover debt, it may also put down many businesses with excess debt in the process.

“In this climate there will be restructuring, just as much as there will be opportunities for larger companies to give the ideas and assets of businesses that perish a second chance through acquisition and rescue. The next month is crucial for the UK economy and construction industry. To carry out work, deliver jobs, ideas, productivity and growth there needs to be a healthy balance of small, medium and large companies. Businesses across the economy need to see confidence improve – this Budget is crucial.”