New data signals a sector reset as contractors face easing wage pressures but growing uncertainty over workforce and project pipelines.
The UK construction sector is showing clear signs of a cooling labour market, according to a report by Southern Construction Framework, leading construction procurement framework delivered by the public sector for the public sector in the South of England.
The report found that in Q3 2025, employment increased by a modest average of 0.1%, compared to 1.5% in Q3 2024. Across the trades, drylining decreased by the largest amount (-4.0%), with concrete frame (+1.0%) and windows (+1.6%) all seeing modest increases.
This is being driven by multiple forces according to the report, including regulatory burdens, cost pressures, and skills shortages.
The news comes as an ONS report found that construction employment sunk to a 24-year low to 1.3% in the third quarter to 2.05 million. This marks a 15% collapse in capacity since a peak just before Covid.
While this is easing cost pressures on contractor project budgets, with wage growth slowing to 3.9%, down from 6.4% in March, it is indicative of weak project pipelines.
In an extreme case, SCF’s report found that a South West drylining provider has experienced a -34.3% drop in employment in a strategic effort to revise their strategies and downsized operations.
The survey of over 150 subcontractors found that average tender workload across all regions was +1.5% during Q3 2025, significantly lower than Q3 2021 which saw a quarterly movement of +5.71%.
Janara Singh, Assistant Framework Manager at SCF, said:
“SCF contractors have reported noticeable shifts in behaviour across the supply chain, reflective of insecurities in the marketplace. Contractors and suppliers alike are reassessing their strategies, with many adjusting their tendering approaches, cost structures, and workforce planning to remain competitive in a volatile environment.”
The regulatory landscape continues to be a defining factor in shaping tender activity and project delivery timelines, having a particularly negative effect on the London housing market. The implementation of the Building Safety Act (BSA) Gateway 2 has introduced significant delays in high-rise residential developments, contributing to a -1.9% decline in window-related tenders in the capital. This bottleneck has created uncertainty for contractors and developers, with many projects stalled awaiting compliance approvals.
While a recovery is anticipated, over the next year with the report predicting a 3.7% increase in tender workload, the current environment has forced suppliers to adapt their strategies.
This shift is evident in the South West, where curtain walling and carpentry & joinery have seen notable increases in tender volumes, suggesting a shift toward façade and fit out work in areas with fewer regulatory hurdles.
The lack of good-quality labour is also adding time to projects, as contractors struggle to secure skilled subcontractors. In response to ongoing skills shortages in the sector, the government has published its Post-16 Education and Skills White Paper, pledging to invest £100 million over the next 4 years to expand Construction Skills Bootcamps.
Adrienne Turner, Framework Manager, said:
“To successfully navigate today’s construction landscape, public sector organisations must prioritise early planning, proactive collaboration, and strategic investment in talent. Building resilience means engaging supply chain partners early, leveraging digital tools for compliance, and focusing on high-quality subcontractors. With labour market cooling and skills shortages persisting, visibility and certainty of project pipelines are essential for effective workforce management.”
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