BTG’s latest Red Flag Alert for Q3 2026 has revealed that construction has the second-highest number of businesses in financial distress as the sector continues to face a myriad of cost, supply chain and regulatory challenges
The research found that 108,340 construction firms were facing significant financial health issues in Q3 2026, a 4.6% year-on-year increase from 103,551 in Q3 2025.
The data also registered that 6,522 construction firms were in ‘critical’ financial distress in Q3 2026, down 11.4% year-on-year from 7,361 in Q3 2025.
Julie Palmer, Managing Partner at BTG, explained: “Construction is often at the cold face of financial distress, and the data shows it remains persistent and high.
“Soaring costs, regulatory challenges and macroeconomic uncertainty have already left firms and the wider property market feeling unconfident, and so it is more imperative than ever that help is directed at getting property markets moving alongside supporting the construction firms delivering projects with financial pressures.”
Construction financial health second worst of all sectors
Of the 22 sectors monitored by the Red Flag Alert, the latest research shows that Construction takes second place for the highest number of businesses in both ‘significant’ and ‘critical’ financial distress.
Across the construction subsectors, the highest numbers of businesses in ‘significant’ financial distress were in residential development and trades, often comprising small owner-managed or sole trader businesses.
This includes 16,263 firms delivering ‘Development of building projects’ (+6.6% YoY, Q3 2025 – 15,258), 13,016 delivering ‘Construction of domestic buildings’ (+10.8% YoY, Q3 2025 – 11,742), 7,800 ‘Plumbing, heat and air-conditioning installation’ businesses (+11.9% YoY, Q3 2025 – 6,971) and 7,648 ‘Electrical installation’ companies (+5.5% YoY, Q2 2026 – 7,247).
Could plans laid out in the Autumn Budget help construction businesses recover?
The findings arrive as the government has laid out plans in its Autumn Budget, including a £4.7bn new home equity loan scheme, Your First Home, and first-time buyer ISAs aimed at stimulating the housing market.
Against a backdrop of planning and regulation challenges, rising employment, tax and material costs, and inflationary pressures, Construction firms hope support for businesses and funding to jumpstart the property market will bring activity back to the sector.
“There has been good news for the residential market in the form of affordable housing funding, Your First Home and the new first-time buyer ISA. For housebuilders that were beginning to see cracks in the foundation of their financial position, policy that gets the market moving will be welcome as they look to mitigate rising build costs and shrinking margins,” Palmer commented.
“SME firms supplying these larger developers will also hope to get a slice of the pie, especially as financial distress hits smaller businesses more deeply.”
She concluded: “With late payment affecting cashflow and subsequent borrowing often the root cause of this decline in financial health, these smaller firms will also hope the Commercial Payments Bill will move the dial on setting their sights on recovery and growth.”
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