Financial woes in the construction sector deepened in the fourth quarter (Q4) of last year with 7,849 firms now on the brink of collapse, according to Begbies Traynor.
In its latest quarterly Red Flag Alert – issued today (22 January) – the insolvency practitioner added that 83,332 construction companies were in “significant financial distress”. This is more than any other industry. It also marks an 8 per cent year-on-year increase compared to the final quarter of 2023 and growth of 15.3 per cent compared to Q3 2023.
Begbies Traynor expressed especially serious concern over the health of the construction sector, which saw the number of firms on the near-bankrupt list increase by 32 per cent compared to the Q3 2023 total of 5,919.
Construction accounted for more firms than any other sector, ahead of support services (7,096) and real estate (6,228). In all, Begbies Traynor calculated 47,477 UK firms began 2024 in a near-bankrupt condition.
Julie Palmer, a partner at the business recovery specialist, described high interest rates, rampant inflation, weak consumer confidence “and rising and unpredictable input costs” as fundamental reasons behind “this perfect storm impacting every corner of the economy”.
As a result, businesses in “bellwether sectors” such as construction were in serious jeopardy, she added.
Data from Creditsafe showed that fewer firms entered administration in December 2023 than the same month in the previous year, although the full-year total of 363 administrations was 42 per cent higher than 2022’s. And 2024 has already begun on a low note with the demise of Scottish housebuilder Stewart Milne Group.
Begbies Traynor’s executive chairman Ric Traynor remarked that “unrelenting macroeconomic pressures” were taking their toll, adding that his firm’s empirical data suggests that insolvency rates are likely to accelerate in the short term before a potential respite later this year if interest rates and inflation fall as forecast.
“Unfortunately, there are no signs of an easy fix,” Traynor said. “For many businesses, I fear soldiering on in this environment will prove to be one step too far and I expect thousands of debt-laden businesses to start to fail this year.”