The Chartered Institute of Building and the Federation of Master Builders have released the results of their latest State of Trade survey. CIOB head of policy and public affairs David Barnes reflects on the key highlights and what could be in store for construction SMEs in the coming months amid ongoing conflicts abroad and policy changes here in the UK
In March 2026, we and the Federation of Master Builders (FMB) published the results of the State of Trade Survey, which looked at key market indicators for construction SMEs in the second half of 2025.
This was the second time we have partnered with FMB on the survey and while there were some aspects that give cause for optimism, there are others which point to an industry riddled with recruitment and cost issues and, in some cases, an uncertain future.
The survey found that renovation (70%), home improvement (70%) and major works (65%) were the top three most common activities delivered by SMEs in the second half of 2025. However, carpenters (30%), bricklayers (29%) and plumbers and HVAC trades (23%) were the most difficult skilled trades to recruit.
Cost pressures and SMEs have long gone hand in hand, so it’s never surprising to hear rising material costs and the increasing costs associated with staffing, including National Insurance, are problems being faced by a large number of SMEs.
What is particularly concerning this time around, however, is the latest survey only covered the period July to December 2025, so well before the start of the ongoing conflict in Iran.
Materials, fuel and energy costs top concerns
Three-quarters (75%) of respondents that completed the survey raised concerns about higher material costs in the last six months of 2025, so in light of ongoing conflict in Iran and the knock-on impact to other parts of the Middle East, it’s fair to assume the next survey, covering the first half of 2026, is likely to paint a similar, if not worse, picture. Latest data from the Purchasing Managers’ Index already suggests this will be the case.
We are already seeing inflated fuel prices, which is obviously unwelcome news for construction firms both big and small as it means more to pay at the pumps and increased costs for deliveries.
Energy costs for UK manufacturers have also increased sharply, although this might take time to fully feed through as many manufacturers often secure energy in advance.
The UK also imports some construction products, such as electronics, from China, which is heavily dependent on Iranian energy, and this may have a knock-on effect on import prices.
Unfortunately, we do not know how long the war in Iran will last and recent updates from the International Monetary Fund suggests there will be significant damage to the UK economy as a result.
Wage pressures hit clients and profits
In addition to materials costs, over half (57%) of respondents to the State of Trade survey also said they saw a rise in wages in the second half of 2025.
Respondents whose businesses were affected by rising outgoing costs, specifically wages, salaries and material costs, reported a range of impacts:
- 61% said they increased the prices they charge clients.
- 51% reported lower-than-expected profits or losses.
- 34% said their plans to recruit new staff had been restricted.
- 20% fear their business viability was under threat.
- 16% reported staff redundancies or contract terminations.
When asked to look ahead to the first half of 2026, nearly half of respondents to the State of Trade survey expect negative impacts from changes to National Insurance contributions (47%) and the Chancellor’s Autumn 2025 budget (46%).
The government’s Autumn Budget contained several measures, such as rises in the minimum wage, which have had an impact on some SMEs’ cash flows and staff planning and is consistent with other data in the report.
Despite this, just under half (48%) had a positive outlook for the start of 2026. With so many policy changes afoot, however, including those around biodiversity net gain and the National Planning Policy Framework along with the introduction of the Future Homes Standard, in the first half of 2026, it will be very interesting to see how these factors have impacted construction SMEs in reality.
The next State of Trade survey, covering January to June 2026, will be carried out over the summer and we will eagerly await the results.
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