The Impact of Macroeconomic and Insolvency Trends on the Surety Sector
The Bonds and Surety market rarely operates in a vacuum. Broader economic conditions, including inflation, interest-rate changes, cost pressures, and construction-industry insolvency waves, deeply influence both the demand for and supply of Surety Bonds. For employers, funders and contractors, understanding these trends is critical to making informed decisions about Surety, Bond availability and project risk.
In this blog, we explore how macroeconomic and insolvency developments are reshaping the UK surety sector, what that means for Bond market capacity, contractor default risk and what to expect from the Surety Bond market outlook.
Macroeconomic Pressure and Its Knock‑On Effects on UK Construction
The UK construction sector has recently seen significant headwinds. Rising material and labour costs, inflationary pressure and increased interest rates have squeezed cash flows for many contractors.
Because many construction contracts remain fixed‑price, sudden spikes in costs (e.g. materials, wages) can quickly erode margins and destabilise contractors’ finances, especially if there are no suitably negotiated escalation clauses or fluctuation mechanisms.
Macroeconomic stress directly increases contractor default risk, which is a key driver behind demand for surety from employers and funders.
How Insolvency Trends are Reshaping the Surety Market
Construction Insolvency Rates Are High
The insolvency statistics for 2024–2025 indicate that the number of failed contractors remains elevated compared to pre-pandemic levels.
This sustained wave of insolvencies is prompting employers, developers and funders to demand more robust surety, making sure there is financial protection in case of contractor default or failure. As such, demand for performance bonds and other surety bond solutions has increased.
Reduced Capacity & Harder Terms
The surge in insolvencies has tightened conditions from surety providers. Some underwriters have reduced their capacity, or even exited the market altogether, shrinking the pool of available Bond capacity.
Bond wordings are becoming stricter and more onerous for contractors. Underwriting criteria have hardened: contractors now face more rigorous due diligence, including detailed financial disclosures, proof of liquidity, rigorous project governance and risk‑management methodologies to prove they’re under control.
As a result, some contractors, even those with otherwise healthy businesses, can struggle to secure bonding capacity.
Challenges That Remain in the Surety Market
Market cycles tend to reward well‑managed, financially robust contractors. Those who can demonstrate sound cash‑flow management, transparent accounting and disciplined risk control are likely to secure capacity.
Moreover, as demand for Bonds increases from employers seeking protection, the value of Surety Bonds as security is reinforced, making it more central to contract negotiations, especially for risk‑heavy or long‑term projects.
Fewer Surety Providers and lower overall capacity may put strain on contractors seeking Bonds, particularly smaller or more leveraged firms. More stringent underwriting and tougher Bond wordings may make Bonds more expensive or harder to secure.
Some contractors may be pushed toward alternative security options, such as cash security, parent company guarantees, retention, or alternative bond types, but these often don’t offer the same level of protection as a well-structured Performance Bond. These alternative options can also tie up vital working capital at the start of a project, potentially creating cash-flow pressure and, in severe cases, contributing to insolvency.
What This Means for Employers, Clients and Contractors
For employers / clients / funders: The heightened insolvency risk reinforces the importance of insisting on Surety Bonds (Performance Bonds, Advance Payment Bonds, Deposit Bonds etc.) as part of pre‑contract due diligence. The Bond market’s tougher stance means that secured bonds from credible sureties will be more valuable now than ever.
For contractors: If you want to maintain or expand bonding capacity, it is vital to demonstrate strong financials, robust risk management and transparent reporting to bond underwriters. Early engagement with your broker or surety provider remains key.
For all parties: The current environment underscores the importance of carefully reviewing bond wording, scope and conditions. Having a bond is no longer just a formality; it’s a strong protective measure in a volatile economic and insolvency climate.
Surety’s Role is Growing; If the Market Adjusts Responsibly
The interplay between macroeconomic pressure and rising insolvency in the UK construction sector is reshaping the surety bond landscape. While available capacity has tightened and underwriting is stricter, demand for reliable bonds has never been stronger.
As the surety market recalibrates, Bonds issued under proper scrutiny may provide the stability and protection employers, funders, and contractors need.
At CG Bonds Surety, we’re closely monitoring these developments and remain committed to helping clients navigate this shifting landscape, whether that means securing Performance Bonds, Advance Payment Bonds or alternative Surety Bond solutions suited to today’s challenges.
