The latest Red Flag Alert report from insolvency specialists Begbies Trayner Group (BTG) reports that in the fourth quarter (Q4) of 2025 the number of businesses experiencing 鈥榗ritical鈥� distress in the construction sector had increased year-on-year by 46.1% to 9,981.
There were also 108,213 construction firms found to be in 鈥榮ignificant鈥� distress, which was a 10.9% more than a year before.
The areas of the construction industry with the most 鈥榮ignificant鈥� distress were companies delivering 鈥楧evelopment of building projects鈥� (up 12.7% to 14,968), 鈥樎芾蛟� of Domestic Buildings鈥� (up 9.9% to 12,121), and 鈥楽pecialised design services鈥� (up 15% to 6,666).
High levels of significant distress were also experienced in the trades, with companies delivering 鈥楨lectrical installation鈥� (up 13.4% to 7,953) and 鈥楶lumbing, heat and air-conditioning installation鈥� (up 13.6% to 7,604) also among the highest rates across construction.
Red Flag Alert has been measuring and reporting corporate financial distress since 2004. It has become a benchmark on the underlying health of companies across every sector and region of the UK.
Red Flag Alert鈥檚 algorithm measures corporate distress signals, drawing on company accounts and other data from a range of sources.
BTG managing partner Julie Palmer said: 鈥淭he construction industry and its supply chain may have held its breath for too long in the final quarter of 2025. 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.
鈥淪ome large firms, house-builders and developers had a very strong 2025 but 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. Planning reforms and demand could help move the market, but as many have noted there is still a huge backlog and significant investment is needed to see a trickle down to smaller contractors. The longer that trickle down takes to reach them, the more likely it is that they leave the market. And drying up an already shallow pool of talent as more leave the industry could make it harder to build at scale.
鈥淩ising minimum wage, unemployment, persistently high inflation, material costs and HMRC cracking down on unpaid tax will make it hard for businesses. However, if we鈥檙e looking for some positivity, there is possibility that this creates room for innovation and acquisition at the other end of the scale. The construction industry is resilient, and if those that remain can widen margins, win large public sector work and provide the houses and commercial office space of the future then there is a way forward.鈥�
Red Flag Alert chief executive Richard West said: 鈥溌芾蛟� has been at the sharp end of this downturn for some time, but these results show that the pressure is intensifying rather than easing. In this environment, construction professionals cannot rely on historic relationships or gut feel alone. They need live, granular insight into who is genuinely resilient and who is one bad debt away from failure. Our data is designed to give the sector that early warning, so businesses can protect cash flow, avoid zombie companies, and still move quickly when viable opportunities arise in what will remain a very challenging year.鈥�
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