Rise in construction firms in ‘critical’ financial distress

The number of construction companies in ‘critical’ financial distress rose almost a half in the final quarter of last year, an insolvency specialist has said.

According to the latest data from Begbies Traynor, there were 9,981 construction businesses in the ‘critical’ category during the last three months of 2025.

This marked a rise of 46 per cent compared to the final three months of 2024.

The figure for the same category stood at 7,361 in the third quarter of 2025.

Ratings are given as part of Begbies Traynor’s Red Flag Alert system, which screens companies for sustained or marked deterioration in key financial ratios and indicators.

Metrics included working capital, contingent liabilities, retained profits and net worth.

The number of construction firms in Begbies Traynor’s second-worst category, called ‘significant’ distress, hit 108,213 in October-December 2025.

This marked an 11 per cent year-on-year increase.

Subsectors with the biggest rises in that category were those providing specialised design services; plumbing, heat and air-conditioning installation; and electrical installation.

Begbies Traynor managing partner Julie Palmer warned that while larger contractors, housebuilders and developers had a strong 2025, their performance may not continue to be as strong in 2026.

“The construction industry and its supply chain may have held its breath for too long in the final quarter of 2025,” she said.

“The slowing of projects, subdued demand from clients and lack of confidence across the economy waiting for some relief from the budget has pushed companies close to the edge of collapse.

“As the impact of stilted growth and subdued demand continues into this year, it will not only be the smaller and distressed businesses who are anxiously facing a challenging first quarter.”

She added that the rising minimum wage, unemployment, inflation, material costs and HMRC cracking down on unpaid tax will all put pressure on businesses.

“However, if we’re looking for some positivity, there is possibility that this creates room for innovation and acquisition at the other end of the scale,” she said.

Data from the Office for National Statistics earlier this month revealed that construction insolvencies, of all types, fell to 297 in November 2025, down from 321 in the same month in 2024.

However, data exclusively provided to Construction News by Creditsafe shows there were 20 construction firm administrations in December 2025 – the highest total for that month since December 2022.