Some 7,458 construction businesses were in ‘critical’ financial distress in the second quarter (Q2) of 2026, according to a new report from insolvency firm BTG.
Its research found a 6.6 per cent increase in the category compared with the same period in 2025.
There were 101,568 construction businesses in the less-severe ‘significant’ financial distress category, BTG said, marking a 0.7 per cent decrease compared with Q2 2025.
Meanwhile, the S&P Global UK Construction Purchasing Managers’ Index (PMI) registered 44.3 in August, down from 44.7 in July. Any score below 50 indicates a contraction in the sector.
It was the 20th month in a row that the PMI survey found output to be shrinking.
July’s figure had been an increase on the 38.4 seen in June.
In August, S&P said residential work suffered the sharpest fall, while commercial and civils output declined at their slowest rates since January and March respectively.
BTG managing partner Julie Palmer said: “Construction has been on shaky foundations for a number of years, and the persistently high rates of financial distress identified in our Red Flag Alert attest to this.
“The slow activity levels within the industry will only serve to exacerbate these issues and industry leaders will be looking for pipeline activity promises to quickly become reality to head off more distress.”
The majority of companies in significant financial distress are involved in residential construction and development, BTG said, including trades such as plumbing, heating and air-conditioning.
On the PMI figures, Aecom head of cost management Brian Smith said: “The industry will be disappointed that July’s rebound was only a one-off and that they’re still no closer to a return to growth.
“Client confidence is slowly building and more project tender opportunities are available, so the contractors who’ll get ahead will be the ones that have retained capacity and are investing in efficiency.”
Atul Kariya, head of real estate and construction at accountancy firm MHA, said the sector is “doing little more than treading water”.
“The fundamentals have not changed. Demand is weak, costs remain high, planning is still too slow, and confidence is being held back by uncertainty. A new government may bring fresh conversations on housebuilding and reform, but for housebuyers and construction businesses it also means another period of wait-and-see, particularly ahead of the Budget.”
He added that construction is likely to remain subdued until the Budget gives businesses reasons to invest and planning reform unlocks sites more quickly.
On the other hand, Carly Thorpe, construction & engineering partner at law firm Walker Morris, saw signs of stabilisation in the PMI data, as output in the civils and commercial sectors declined at a slower rate.
“Recent government commitments on housing delivery, alongside Homes England’s funding allocation to 33 strategic partners and ongoing planning reforms, should help strengthen confidence in the longer-term development pipeline and unlock future investment opportunities,” she said.
“The key challenge will be ensuring projects can be delivered within budget as inflationary pressures persist across materials, labour and supply chains.”
