Q3 2025: Confidence edges down as concern about the tax burden climbs to new record highs and regulatory challenges remain elevated.
The latest national Business Confidence Monitor (BCM) shows that business sentiment deteriorated further into negative territory in Q3 2025. This increased pessimism is underpinned by elevated concern over the tax burden as well as above-average inflation and weak exports sales growth, eroding businesses’ profit margins.
The survey results are based on 1,000 telephone interviews among ICAEW Chartered Accountants covering a range of UK sectors, regions and company sizes, ensuring a representative picture of the UK economy. The latest quarterly findings are based on the period 14 July to 24 September 2025.
- The Business Confidence Index for Construction slipped again to reach +1.4 in Q3 2025, dropping below the sector norm (+3.8) but remaining above the UK average (-7.3).
- The tax burden was reported by 73% of Construction businesses as a growing challenge, the highest proportion across all sectors and a new survey high, while regulatory concerns were reported by over half of businesses in the sector.
- Domestic sales growth continued ahead of the historical average, with further expansion anticipated in the year ahead.
- Input price inflation eased again in Q3 2025 and is predicted to drop below the sector historical average over the coming year.
- Labour demand slowed but is expected to rise in line with the historical and national average over the coming 12 months, while skills-related concerns declined.
- Businesses plan to scale back capital investment and R&D budget growth sharply.
Business confidence in the Construction sector
The Business Confidence Index for Construction eased again in Q3 2025, falling to +1.4 from +4.7 in the previous quarter. Despite the decline, it remains one of the most confident sectors in the UK, second only to Energy, Water & Mining (+21.2). Sentiment in the sector is now below its historical average (+3.8) but remains above the national average, which slipped further into negative territory in the quarter to -7.3.
Confidence among construction companies soared during 2024 after the new Labour Government announced its housing targets and its intentions to reform planning, but confidence has been ebbing away in recent quarters despite the most recent ONS data reporting that monthly construction output rose in June and July following a dip in May and overall construction output grew by 0.6% in the three-month period to July 2025. However, regulatory concerns in the sector remain at near-record highs, with evidence suggesting that housing starts are subdued with ongoing planning issues and the Building Safety Act causing delays, particularly for high-rise buildings, while commercial projects are being delayed because of cost rises. All these factors are likely weighing on confidence but businesses in the sector were also the most likely to report the tax burden as a growing challenge, with nearly three quarters of companies in the sector reporting the issue in Q3 2025. Common to most sectors, Construction businesses are continuing to adjust to April’s increases in employers’ National Insurance Contributions and the National Living Wage, while also considering the potential impact of further tax rises yet to come in November’s forthcoming Budget.
Domestic sales growth and customer demand
Construction businesses reported that annual domestic sales growth edged up slightly to reach 2.9% in the year to Q3 2025, close to the all-industry average (3.0%) and above the sector historical norm (2.7%). Businesses continue to predict an improvement in the year ahead, but have again dampened their expectations, with growth of 3.5% projected, lower than the rise anticipated last quarter and weaker than the forecast across all sectors (4.0%). With domestic sales strengthening in the quarter, the proportion of businesses reporting customer demand as a growing challenge fell to 36%, below the sector historical norm (42%) and below the UK average in Q3 2025 (39%).
Input prices, selling prices and profits growth
Annual input price inflation slowed to 3.8% in the year to Q3 2025, down from 4.3% recorded in the previous quarter and matching the national average. Construction businesses expect cost pressures to ease further in the year ahead, anticipating that input prices will rise by 3.0% over the coming 12 months, just below the sector historical average (3.1%) but slightly higher than the economy-wide expectation (2.8%).
The growth in selling prices in the Construction sector ticked up for the second consecutive quarter to 2.7% in the year to Q3 2025, pushing further from their historical average (1.4%) and higher than the rises reported nationally (2.2%). While businesses in the sector plan to ease the rate of price rises in the coming year to 2.4%, they expect to maintain a gap to the economy wide projection (1.9%).
Despite improved domestic sales growth and lower cost inflation, businesses reported that profits growth slowed to 1.0% in the year to Q3 2025, the lowest rate recorded since Q1 2024 and less than half the historical and UK average (both 2.3%). Companies anticipate profits growth will improve to 4.0% in the coming 12 months, close to the national projection (4.1%).
Employment and labour market challenges
Employment growth in the Construction sector slowed to 0.8% in the year to Q3 2025, the lowest growth rate reported by the sector for a year, though it was close to the UK average in the quarter (0.9%). Businesses have also lowered their expectations for the year ahead, now predicting growth of 1.2% compared to 2.5% reported last quarter. Their current forecasts match the sector historical average and the economy-wide projection.
The survey provides other evidence consistent with cooling demand in the sector. Concerns about the availability of skills have been among the most prevalent in Construction over recent quarters, however reports about both the availability of management and non-management skills dropped sharply in Q3 2025 and were below their respective historical averages.
Wage pressures edged up in Q3 2025, with businesses reporting annual salary growth of 3.1% in the year, compared to 2.6% last quarter. This rate of increase matched the UK-wide average. Companies expect salary growth to cool slightly to 2.9% over the coming year, slightly ahead of the national projection (2.7%).
Business challenges
Concern about the tax burden rose to another survey historical high in Q3 2025 and was more widely reported by Construction businesses than in any other sector. Almost three in four Construction companies reported the issue (73%), notably higher than the economy-wide average (60%) and close to four times the sector’s historical norm (19%). The rise in concern likely reflects April’s rises in employer National Insurance Contributions and the National Living Wage but also businesses’ anxiety about the potential of further tax rises in November’s Budget.
Regulatory concerns in the sector also remain close to record highs in Q3 2025, with the issue reported by 56% in Q3 2025, close to the survey high of 57% reported last quarter. Businesses continue to be frustrated by the planning system, the Gateway 2 approval process run by the Building Safety Regulator and delays to electricity and water connections to new buildings. Concern about regulatory requirements in Construction is comparable to Banking, Finance & Insurance and Property (both 58%).
Investment growth
Capital investment growth edged down to 1.9% in the year to Q3 2025 but remains above the sector historical average (1.6%) and the national average (1.8%). However, against a backdrop of much weaker confidence, businesses plan to scale back investment sharply in the coming year, expecting to increase capital investment by just 0.1%. This is the smallest expansion forecast across all sectors and much lower than the national expectation (1.7%).
The sector again reported robust growth in R&D budgets in Q3 2025, which expanded by 2.8%, notably ahead of the national average (1.8%) and the sector historical norm (1.1%). Companies plan to slow the rate of growth to just 0.9% over the coming 12 months which is lower than the economy-wide projection (1.6%).