The latest FMB/CIOB State of Trade Survey shows UK construction SMEs are still growing, but the momentum from early 2025 is fading. Workloads remain positive (+22%), yet 72% of firms now report being hit by skilled labor shortages, up from 61% in H1. Material costs keep climbing (75% saw increases), half of all firms are logging lower-than-expected profits, and nearly a third say the skills gap has stalled their expansion plans entirely. The outlook for H1 2026? Cautiously positive, with 48% of firms optimistic, but National Insurance hikes and planning uncertainty are casting a long shadow.
Every six months, the Federation of Master Builders (FMB) and the Chartered Institute of Building (CIOB) publish the only survey dedicated exclusively to small and medium-sized construction firms across the UK. It’s been running for over 30 years. And for anyone trying to get a real read on conditions at the sharp end of the industry, where bricks actually get laid and invoices actually get chased, this is the one to watch.
The H2 2025 edition (covering July to December) landed in March 2026, based on 493 responses from FMB members, CIOB Chartered Companies, and a broader sample via Savanta. The headline? Growth hasn’t stopped. But it’s slowing. And underneath the positive net balances, the numbers on skills, costs, and recruiting tell a much more uncomfortable story.
If you’re running an SME contractor, managing a supply chain, or building technology for people who do, this is the data that matters. Here’s what’s in it, and what it means for you.
UK construction SMEs are busier than they were a year ago, but the pace of growth has cooled. The real problem sits deeper: a skilled labor crisis that’s now affecting nearly three quarters of firms, rising costs that are eating into already thin margins, and a policy environment that’s creating more questions than answers heading into 2026.
Key indicators: still positive, but the wind is changing
Workloads, enquiries, and employment all dipped from H1
All three headline measures came in positive for H2 2025. Workloads recorded a net balance of +22% (down from +25% in H1), enquiries hit +18% (down sharply from +34%), and employment came in at +17% (from +26%). That’s still healthy on paper. And it’s worth noting this is the first time since Q2-Q3 2023 that workload has been positive for two consecutive waves.
Even so, the direction of travel is clear. Enquiries, in particular, took a noticeable hit. House building enquiries actually turned negative at -6%, a steep fall from +11% in the first half. The survey attributes this partly to uncertainty around proposed changes to the National Planning Policy Framework (NPPF), which is creating a holding pattern in the planning system. Once a new NPPF is locked in, that should recover. But for now, it’s weighing on pipeline confidence.
Regionally, the North of England continues to outperform, posting the highest net workload change at +39%. Greater London came in at +24%, with the Midlands and the South trailing at +14% and +12% respectively. One red flag: enquiries in the Midlands dipped into negative territory at -11%, which is a sharp reversal from +25% in H1 2025.
The skills crisis is getting worse, not better
72% of firms now report being affected, up from 61%
This is the headline figure that should worry everyone. In H2 2025, nearly three quarters of respondents said skilled labor shortages were directly affecting their operations. That’s a significant jump from 61% just six months earlier. And the consequences are tangible: 49% reported job delays caused by shortages, 30% said it had halted plans to expand their company, and 22% said it had led to outright job cancellations.
Carpenters remain the hardest trade to fill (30% of respondents flagged this), followed by bricklayers (29%) and plumbers/HVAC trades (23%). There’s a small silver lining: this is actually the first time since 2020 that carpenter recruitment difficulty has dropped below 33%. Roofer recruitment also eased, falling 10 percentage points from 32% to 22%. But those improvements are marginal against the broader trend.
- 58% struggle to find staff with knowledge of new technologies to help their businesses innovate, virtually unchanged from H1 2025.
- 57% can’t find people who understand modern sustainable building practices, a persistent gap that will only get more painful as Future Homes Standard deadlines approach.
- 56% report difficulty recruiting people with knowledge of new planning proposals, a newly tracked metric that speaks to how fast the regulatory environment is shifting.
- 55% can’t recruit staff familiar with new remediation requirements, a critical blind spot given the Warm Homes Plan and incoming EPC/MEES changes.
- 51% find it difficult to hire people with building safety regime knowledge, down from 64% in H1, which is at least moving in the right direction.
What’s striking here is the breadth of the problem. This isn’t just about finding someone who can lay bricks. It’s about finding people who understand new regulations, new sustainability standards, and new technologies, all at the same time. For an industry already struggling to attract young talent, that’s a compounding challenge. And it’s one that technology alone can’t solve, though it can certainly help close the gap. (If you’re interested in where AI fits into the productivity puzzle for construction, this recent episode with Matt Gough is worth a listen.)
Material costs keep climbing, and margins are paying the price
75% report material cost increases, 51% are seeing lower-than-expected profits
Three quarters of respondents reported rising material costs in H2 2025, unchanged from the first half of the year. Wage increases were reported by 57% (down from 67%), and 61% said they’d raised the prices they charged for work. The cost pressure isn’t new, but the persistence is what’s grinding. There’s no relief in sight.
The knock-on effects are real. Among firms experiencing rising outgoing costs, 56% said they’d had to raise prices (passing it on to clients), and 51% reported lower-than-expected profits or outright losses. A third (34%) had restricted their recruitment plans. One in five (20%) said the viability of their business was at risk or that closure was a possibility. And 16% had made redundancies or terminated contracts.
One in five SME construction firms say their business viability has been affected by rising costs. That’s not a statistical footnote. That’s survival arithmetic.FMB/CIOB State of Trade Survey, H2 2025
For a sector already running on average margins of 2-3%, that kind of sustained cost pressure is existential for smaller firms. It’s also worth flagging the invoice payment data: only 57% of respondents had their invoices paid on time, 29% experienced varied payment timelines, and 13% reported frequent late payments. Cash flow, already tight, is getting tighter.
What’s causing the delays? Weather, planning, and uncertainty
90% of firms experienced some form of job delay in H2 2025
Only 10% of respondents said they’d experienced no delays at all in H2 2025, down from 19% in H1. The most common cause? Extreme weather or climate events (40%), which was a new tracking category introduced this wave. Planning delays came in at 36%, market uncertainty at 35%, and material/equipment delays at 31%.
The climate figure is notable. It’s the first time the survey has tracked weather-related delays separately, and the fact that it immediately topped the chart says something about the physical operating conditions for UK construction firms right now. Planning delays are a perennial frustration, but the market uncertainty number (up from 30% to 35%) reflects a broader loss of confidence in the policy environment heading into 2026.
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Join 2500+ ReadersThe 2026 outlook: cautious optimism, clouded by policy
48% are positive, but NI hikes and budget changes are weighing heavily
Looking ahead to the first half of 2026, 48% of respondents hold a positive outlook, 38% are neutral, and only 8% are negative. That’s a decent split. But the policy environment is where anxiety is concentrated.
Nearly half (47%) of respondents expect National Insurance contribution changes to have a negative impact on the construction industry. The Autumn Budget 2025 scored similarly badly, with 46% anticipating negative effects. On the flip side, the relaxation of Biodiversity Net Gain (BNG) requirements on small sites was seen as the most positive policy change (32%), though it also carried the highest uncertainty (17%).
On NPPF-specific changes, the introduction of a new “medium size” category (10-49 homes) was viewed positively by 37% of respondents, with just 8% expecting negative effects. Changes to the Building Safety Levy application were more divisive, with 36% positive and 20% negative. These numbers suggest the industry is cautiously welcoming planning reform, but deeply wary of the fiscal headwinds.
For a broader look at where the construction sector is heading in 2026, our 2026 trends piece covers the macro picture from a tech and investment perspective.
H1 vs H2 2025: how the key figures compare
| Indicator | H1 2025 | H2 2025 | Direction |
|---|---|---|---|
| Net workload change | +25% | +22% | Down |
| Net enquiries change | +34% | +18% | Down (notable) |
| Net employment change | +26% | +17% | Down |
| Firms affected by skills shortages | 61% | 72% | Up (significant) |
| Material cost increases reported | 75% | 75% | Flat |
| Lower-than-expected profits | 49% | 51% | Up |
| Business viability at risk | 25% | 20% | Down (positive) |
| Invoices paid on time | N/A (new metric) | 57% | – |
| Job delays experienced | 81% | 90% | Up |
Frequently asked questions
It’s a twice-yearly survey that’s been running for over 30 years, focused exclusively on small and medium-sized construction firms across the UK. It’s jointly published by the Federation of Master Builders and the Chartered Institute of Building, with research conducted by Savanta. The H2 2025 edition received 493 responses and was published in March 2026. (Source)
Worse than it was six months ago. 72% of SME construction firms reported being affected by a lack of skilled tradespeople in H2 2025, up from 61% in H1. The most difficult trades to recruit are carpenters (30%), bricklayers (29%), and plumbers/HVAC (23%). Beyond trade skills, firms are also struggling to hire people with specialist knowledge in building safety, sustainability, and new technologies. (Source)
Yes. 75% of SME firms reported material cost increases in H2 2025, which is unchanged from H1. Wage and salary increases were reported by 57% of respondents (down from 67%), and 61% said they’d increased the prices they charge for work. The cost pressure is persistent and showing no signs of easing. (Source)
Cautiously positive. 48% of SME firms have a positive outlook for H1 2026, 38% are neutral, and 8% are negative. The biggest policy concerns are changes to National Insurance contributions (47% expect negative impact) and the Autumn Budget 2025 (46% negative). Planning reform through NPPF changes is viewed more favorably, with the new medium-size housing category receiving 37% positive sentiment. (Source)
The North of England led all regions in H2 2025 with a net workload change of +39%, followed by Greater London at +24%, the Midlands at +14%, and the South at +12%. At the national level, Northern Ireland posted the highest net workload at +35%, though that figure carries a small sample size caveat. The Midlands is the one to watch, with enquiries turning negative at -11%. (Source)
The top cause was extreme weather or climate events (40%), which is a newly tracked category. Planning process delays came second at 36%, followed by market uncertainty at 35%, material/equipment delays at 31%, and changing project parameters at 29%. Only 10% of firms reported no delays at all, down from 19% in the previous half. (Source)
Severely, for many. Among firms facing rising outgoing costs, 56% raised the prices they charged, 51% reported lower-than-expected profits or losses, 34% restricted recruitment plans, 20% said business viability was at risk, and 16% had made redundancies. In a sector where average margins sit at 2-3%, even modest cost increases can threaten survival for smaller firms. (Source)
Related reading: Our Take on 2026 Construction Trends | “We Need a Moonshot” – Why AI in Construction Is Focused on the Wrong Problem
