What's Happening?
Consultancy Gleeds has released its Q3 2025 UK Market Report, indicating a fragile but stabilizing construction industry. Despite a modest rebound in August driven by healthcare and commercial projects, the sector faces ongoing challenges such as insolvencies, weakened demand, and squeezed margins. New orders fell by 8.3% in Q2, with significant drops in infrastructure, industrial, and commercial work. Construction output rose by 0.2% in July, marking consecutive growth, yet inflation, financing difficulties, and labor pressures continue to impact confidence. Nearly three-quarters of contractors declined tenders in Q3, and 57% reported reduced risk appetite. Insolvencies remain a concern, with construction accounting for 16.3% of company failures in England and Wales. Corporate restructuring, such as Atlas Holdings' acquisition of Lendlease's UK operations, highlights firms seeking stability amid market fragility.
Why It's Important?
The report underscores the critical state of the UK construction industry, which has broader implications for economic stability and employment. Rising labor costs and unpredictable material supplies, such as the lowest UK cement production since 1950, exacerbate the situation. Strategic materials face constraints due to rising energy costs and global instability. Tender price inflation is forecasted to fluctuate, impacting project costs and contractor margins. The industry's recovery is vital for sectors like education, healthcare, and infrastructure, which rely on construction for development. Gleeds emphasizes the need for faster procurement and improved supply chain resilience to support recovery.
What's Next?
Gleeds calls for turning public sector capital pledges into real project delivery to underpin recovery. The Department for Education's £15.4bn capital framework is expected to support activity across schools and colleges. However, pre-contract delays, driven by planning complexity and regulation, remain a significant drag on delivery. The report suggests that clearer allocation of risk between project partners and firmer policy signals are necessary for contractors to commit to longer-term projects. The industry must navigate these challenges to stabilize and grow.
Beyond the Headlines
The report highlights a shift in design risk earlier in project lifecycles, with increased involvement from mechanical, electrical, and plumbing consultants. This shift reflects a broader trend towards mitigating risks and improving project outcomes. The construction industry's ability to adapt to these changes will be crucial in addressing ongoing challenges and ensuring sustainable growth.
