Credit, Collections & Insolvency News
The number of construction companies at significant risk of closure has jumped 54 per cent to 16,755 this quarter, up from 10,686, according to new data from Mazars.
The analysis of quarterly data alone found that 5,900 more construction businesses have been added to the ‘at significant risk of insolvency’ category.
Surging prices for essential materials have had a significant impact on the construction sector.
Construction companies, like many sectors of the UK economy are also struggling to hire enough labour. A lack of supply in labour to the industry is causing a further blow to companies’ cash flow, by hindering their ability to complete projects on time and get paid.
East Anglia, the South West and South East have seen the largest increases in construction business at risk, with 74 per cent, 72 per cent and 58 per cent increases respectively.
Rebecca Dacre, Partner at Mazars said “The construction sector has been one of the hardest hit by inflation. Prices rises for construction materials have had a huge impact on the ability of a construction company to control costs on a project.”
“They are now faced with the dilemma of how they recover costs soaring away on a fixed price contract.”
“Poor cashflow is an endemic problem in the construction industry so it doesn’t take much to undermine the solvency of many construction companies,” Dacre continued.”
“Many construction businesses took on more debt to get them through lockdown. Due to interest rate rises, they are now seeing the cost of these debts soar, just as the economic outlook is worsening.”
“Rising interest rates may hit new build residential property builders at the worst possible time, as consumer appetite to take on more expensive mortgages will cool.”
“For many businesses across the construction sector, Government help with energy bills cannot come soon enough. Some will be trying desperately to hang on until the relief package kicks in.”