Construction sector small business outlook:
A snapshot over time from Novuna Business Finance
Nationally, small business growth forecasts have fallen during Q1 2025 – with 33% predicting growth by the end of March. A new government double-whammy could be at play here: The rise in small business growth forecasts that followed the new UK Government taking office last July has now worn off – and 77% of small businesses expressed concern over the ripple effect the new US administration could have on small businesses in 2025.
Chief concerns included:
- the possibility of tariffs on UK exports to the USA (43%)
- concern over the impact on UK economic growth forecasts and interest rates (33%).
Within this national context, growth outlook in the construction sector has not yet recovered from the pandemic years. After a sharp fall in the second half of 2020 and Q1 2021, there was an initial resurgence in growth forecasts in early 2022 as Covid restrictions fell away. But soon after growth forecasts fell and they have remained at a lower level ever since
At the beginning of 2025, construction (27%) was one of three sectors where growth forecasts were the lowest – alongside manufacturing (27%) and the leisure and hospitality sector (25%)
Cost of living crisis impact on construction
Following the impact, the cost of living crisis hit 86% of small businesses with a range of serious challenges. The negative impacts most intensely felt in construction included:
- Customers spending less money with us – 35%
- Rising energy costs – 30%
- Rising costs being passed on from our suppliers – 29%
- Not being able to pass on price increases to our customers -24%
Investing in the future
Despite the long term challenges, 79% of construction businesses started 2025 with strategic plans to invest in the future and make their enterprises stronger for the future.
Key priority areas for 2025
- Increasing new business income / sales -38%
- Reducing fixed costs -29%
- Building up financial reserves -26%
- Planning ahead with business budgeting -14%
- Diversifying the business, offering new service lines/ products -13%
Access to finance
Whilst the number of construction businesses planning for future growth is significant, a record number of business owners say these plans are conditional on securing finance.
Percentage of construction businesses that need funding to grow
|
Q4 2024 |
61% |
|
Q2 2024 |
53% |
|
Q4 2023 |
60% |
|
Q2 2023 |
58% |
|
Q4 2022 |
53% |
The specific initiatives construction businesses would not be able to do without securing finance included:
- Increase headcount/ hire new people – 31%
- Invest in new vehicles – 29%
- Pay suppliers on time -24%
- Launch into new market segments within the UK – 22%
- Invest in new production lines/ machinery – 12%
Quick fact file: Construction outlook now compared to 2022
|
% investing in the future and make their enterprises stronger for the future |
% that need funding to grow |
% that predict growth for the next three months |
|
79% V 80% |
61% Vs 53% |
27% Vs 38% |
Joanna Morris, Head of Insight at Novuna Business Finance comments on 2025 market overview: “The final months of 2024 were to some extent a tale of two elections – and both had an impact on small business confidence. As the new Labour Government took office in July 2024, our research indicated an immediate election bounce in small business confidence. A few weeks after the General Election, the percentage of small business owners predicting growth hit its highest level for more than two years, after a period of slow decline since the start of 2022.”
However this uplift was tempered a few months later, when 86% of UK small business owners expressed fears on what they thought could be on the way in the Autumn Budget. Topping the long list of concerns was the prospect of employer’s national insurance hikes (49%), rises to VAT (48%) and income tax (50%). These were issues small business owners believed would damage business growth. Flexible working was a major concern in many traditional sectors, whilst the property sector feared the ripple-effect from the market if there were rises to Capital Gains Tax or Inheritance Tax. The range of fears cited and the depth of concern suggested that the ‘election bounce’ in confidence was fragile and conditional on political and economic certainty, against which small business owners could plan.”
“Beyond the immediacy of the domestic General Election, our Christmas 2024 research indicated that political developments over the Atlantic were also concerning small businesses in the UK. More than seven in 10 small businesses (77%) said they are fearful that policies from the new US administration could have a ripple effect on the outlook for UK small businesses. The most significant concerns included the possibility of tariffs on UK exports to the USA (43%) and fresh uncertainty around the UK’s trading position in the world – with 30% fearing a weakening of the UK’s special relationship with the US and 29% concerned about the UK now finding itself isolated – outside the EU and no longer as close to the USA. Further, the possibility of increased market volatility impacting the UK was also a major concern and on two counts: 33% were concerned about the impact on UK economic growth forecasts and interest rates, whilst 22% feared the impact on their own trading relationships.”
“All this is context, but our research of small business owners spanning 11 years tells us that their growth forecasts are, so often, heavily rooted in the prevailing economic context – and how this shapes confidence, stability and a sense of certainty.”
“It is therefore perhaps unsurprising that, as 2025 started, the percentage of UK small business owners predicting growth had dipped to a nine-month low. Whilst the percentage of small businesses predicting growth for the three months ahead (to 31 March) had fallen back to 33% – the Q1 2025 data also indicates a four-year high in the percentage of small business saying they will scale down or contract (13%). In addition, the percentage of enterprises that fear closure has hit a two-year peak (8%). For those forecasting contraction, Q1 2025 is the first time in five quarters that the figure has exceeded single digits.”
“These findings are all from The Business Barometer study, which has tracked small business growth outlook every quarter since 2015. The latest data suggests a mood of caution offset by a deep resilience. Ever since Brexit and Covid, small businesses have responded to short-term challenges with resilience and by investing in new initiatives to power future growth. And already, we are seeing this for 2025.”
“At Novuna Business Finance, we are committed to supporting established small businesses across a range of sectors with flexible funding solutions. To help small businesses fulfil their true potential we also need to stop and listen. The Business Barometer study has proven to be a helpful resource to given us a glimpse into the minds of small business owners – how they plan, how they grow and how they react to the world events and issues that shape their market, present challenges and allow for opportunities.”