The UK construction industry is “fragile but stabilising”, according to consultancy Gleeds, as cautious optimism grows despite continued insolvencies, weakened demand and squeezed margins.<\/p>\n
Gleeds\u2019 Q3 2025 UK Market Report showed that new orders fell by 8.3 per cent in Q2 following strong growth in the first quarter.<\/p>\n
The downturn was driven by steep drops in infrastructure, industrial and commercial work.<\/p>\n
A modest rebound in August, led by large healthcare and commercial schemes, provided some encouragement, though many firms reported delayed pipelines and regulatory hold-ups.<\/p>\n
Construction output rose by 0.2 per cent in July, marking a second consecutive month of growth.<\/p>\n
However, inflation, financing difficulties and labour pressures continued to weigh on confidence.<\/p>\n
Nearly three-quarters of contractors declined at least one tender in Q3, while 57 per cent reported a reduced appetite for risk, according to the Gleeds report.<\/p>\n
Insolvencies remained a major concern. Construction accounted for 16.3 per cent of all registered company failures in England and Wales in Q2, with specialist subcontractors most affected.<\/p>\n
Though slightly down on the previous quarter, “significant distress” persisted across the sector. Gleeds highlighted recent corporate restructuring moves, including Atlas Holdings’ acquisition of Lendlease\u2019s UK operations and Sisk\u2019s takeover of Farrans, as indicators of firms seeking scale and financial stability amid market fragility.<\/p>\n
Labour costs continued to rise during Q3.<\/p>\n
More than 75 per cent of contractors surveyed by Gleeds reported wage increases.<\/p>\n
Weekly pay rates for freelance tradespeople grew by between 2.9 and 4.6 per cent year-on-year, according to Hudson, a payroll provider for the self-employed construction workforce.<\/p>\n
While job vacancies declined from the post-pandemic peak, long-term labour demand remained high, particularly in regulated sectors such as infrastructure and housing.<\/p>\n
Material supplies remained unpredictable. Gleeds reported that UK cement production had dropped to its lowest level since 1950. Brick deliveries were still 18 per cent below 2019 levels, and prices for steel and cement showed renewed upward pressure in recent months.<\/p>\n
The report warned that strategic materials now faced structural constraints, including rising energy costs, shifting trade dynamics and ongoing global instability.<\/p>\n
Tender price inflation was forecast at 3.5 per cent in 2025, dipping slightly to 3.25 per cent in 2026 before rising to 3.75 per cent in 2027.<\/p>\n
Prices remained stable, though some sectors\u2014particularly infrastructure, energy and water\u2014experienced higher inflation due to sustained demand and regulatory urgency, according to Gleeds\u2019 inflation analysis.<\/p>\n
The report stressed that inflation should be assessed on a case-by-case basis.<\/p>\n
Project size, location, specification and procurement route all influenced pricing.<\/p>\n
Contractor margins rose from 5.7 per cent in Q1 to 6.3 per cent in Q3, suggesting early signs that firms were passing on increased costs where feasible.<\/p>\n
Despite persistent headwinds, Gleeds identified growing opportunity in education, healthcare, infrastructure and office development.<\/p>\n
The Department for Education\u2019s \u00a315.4bn capital framework was expected to support activity across schools and colleges.<\/p>\n
The report also noted increasing early-stage involvement from mechanical, electrical and plumbing consultants, reflecting a shift in design risk earlier in project lifecycles.<\/p>\n
However, pre-contract delays remained a key drag on delivery. Gleeds reported that procurement periods now routinely exceed two years in some regions, driven by planning complexity, regulation and limited risk appetite.<\/p>\n
With optimism among firms at its lowest since late 2022, many contractors avoided longer-term commitments without firmer policy signals.<\/p>\n
The Q3 report concluded that turning public sector capital pledges into real project delivery would be critical to underpinning recovery.<\/p>\n
Gleeds called for faster procurement, improved supply chain resilience and clearer allocation of risk between project partners.<\/p>\n