Almost three-fifths (58%) of UK construction small to medium enterprises (SMEs) are optimistic about 2025, but 56% identified inflation as a key challenge, compared with 48% in other sectors, according to research by Bibby Financial Services.
The SME Confidence Tracker, based on a survey of 1,000 UK SME owners and decision-makers, including more than 200 in the construction industry.
The survey found that the uncertain economic environment was causing many businesses across different sectors to pause investment, construction SMEs were most inclined to spend.
Only 38% of construction companies were waiting to invest until after the General Election, lower than the average of 46% across all other sectors.
The high cost of materials was identified as a key challenge by 65% of construction SMEs, while supply chain disruption was identified by 42%, compared with 27% in other sectors.
A third (34%) of construction SMEs suffered bad debt in the last year.
Access to external finance remained a hurdle, as 53% of construction SMEs said it was more difficult to access external finance than six months prior to February 2024; a further 43% said their need for external finance increased over the same period.
Six in 10 (59%) leaders at construction SMEs reported that banks were less willing to lend to small businesses compared to the previous six months.
Derek Ryan, UK managing director at Bibby Financial Services, said: “In many respects, the construction sector is the bellwether for the economy, and it’s clear that many of the sector’s SMEs owners are seeing an increase in work volumes, which will undoubtedly act as a positive multiplier effect for adjacent sectors, such as manufacturing and transport.
“Despite this optimism, the high cost of materials and shipping, and pressure on supply chains triggered by geopolitical factors in Europe and the Middle East continue to hamper the growth of many construction firms as many businesses price-in this risk, exacerbating the issue throughout supply chains.
“Add to this the increased susceptibility to bad debt and the ongoing challenges faced by construction firms in accessing the finance they need to fulfil existing orders and take on new work, the remainder of 2024 could be a pivotal time for the sector, and the wider economy.
“It’s vital that whichever political party takes power after the General Election keeps the interests of the sector front and centre of their policies.”
