By Chris Bristow, a business debt expert at Real Business Rescue
THE Business Distress Index for Q2 2025 presents a bleak picture of the financial health of Scottish construction, as critical financial distress levels rise, albeit modestly. Overall, the construction industry is regaining a stronger financial footing compared to other industries as it now sits third on the league table of sectors most in financial distress after dropping from first position.
The financial state of Scotland’s construction industry
The number of construction companies in critical financial distress in Scotland climbed from 6,043 in Q2 2024 to 6,999 in Q2 2025 – a 16% change, according to the Business Distress Index from Real Business Rescue. This equates to nearly a thousand more construction businesses in a potentially terminal state due to a severe lack of working capital and empty reserves.
Growth in the construction sector stalled due to low consumer confidence and heightened economic uncertainty. With little respite for British construction in Q2,  the third quarter looks optimistic as construction output is forecasted to rise by 1.9% this year and 3.7% in 2026, according to the Construction Products Association’s (CPA) Summer Forecasts.
Growth is expected to be driven by the repair, maintenance, and improvement of private housing, as well as the construction of new private housing and infrastructure. To meet these growth expectations, the spending appetite of homeowners and consumers must resume. The upcoming Autumn Budget will also have a ripple effect on growth if government support is readjusted and substantial tax rises are introduced.
Sectors under the spotlight
With recovery on the cards for the construction sector, Scottish construction firms have much headway to make before they can lift their feet off the gas pedal. The sectors grappling with a heavy financial burden include support services and real estate and property services as both overtake construction due to worsening critical financial distress levels.
A turbulent road to recoveryÂ
Scotland experienced the largest quarterly drop in financial distress levels than any other region. Scotland saw a -23% change in critical financial distress levels as the number of businesses in this category dropped from 40,435 to 31,251. Overall, this shows that financial distress levels are improving across Scotland.
Although higher taxes and a downturn in consumer demand marred the second quarter, the construction industry in Scotland is stronger and more resilient against economic instability.
