Construction Industry Under Pressure

Back in February, I wrote an article about the rise in household debts in the UK citing the cost of borrowing and the low interest rates as reasons why many had overstretched their financial limitations. This was supported by official statistics from The Insolvency Service which revealed that personal insolvencies had affected over 90,000 individuals in 2016 – a figure which saw a 13% rise from 2015. The significance of this was compounded by the fact that these figures were the highest recorded since 2010, which is why I asked the question on whether the tide had started to turn for household finances. Nine months later, reports have highlighted a worrying trend – but this time, in relation to corporate insolvencies as well.

It was only a little over 3 weeks ago that I touched upon the lack of growth being reported by some organisations, with the main contributor being a fall in sales volumes for several companies. Growth had stalled – and significantly, according to a market research report by the insolvency trade body R3, levels of growth reported were at their lowest since July 2013. In April this year, 64% of businesses had reported some sort of growth – yet this figure was reduced to 53% just five months later.

Those who appear to have been hit hardest were in the construction and retail sectors, with 730 corporate insolvencies in the first quarter of 2017 reported in the construction industry alone. Insolvencies in civil engineering increased by 4% in Q4 2016 and 12 percent year on year. One plausible reason for this? Well, perhaps the implications of Brexit on the construction industry and the decline in new real estate projects could be seen as major contributors to this. Additionally, it could be determined that the delay of larger projects, which were on hold as far back as 2007/8 when the recession hit home look to remain dormant, for as long as the Brexit Uncertainty drags on.

These projects which are on hold in areas such as the South-East and the larger metropolitan areas of the Midlands and the North have played a pivotal role in stagnating the construction industry.

Looking at the predicament from a more general perspective, several factors have badly affected businesses in general such as rising business rates, an increase in inflation, the weaker pound and a rise in the national living wage. For those businesses operating on the edge, it could be an increase in the cost of borrowing or a fall in consumer confidence to tilt the scales towards financial distress.

Julie Swan, Partner at PCR said:

“Uncertainty is never likely to breed content in the economic environment, as demonstrated by these statistics. Unfortunately, with a divided party in leadership, clarity is not something we can expect in the short-term, so we are likely to be looking at a continuing rise in corporate insolvencies”.

It appears that this quarter’s rise in underlying insolvencies, has moved things back towards the trend of growing insolvency numbers seen in the middle of 2016, with over 4,000 companies entering insolvency in a three-month period between 30 June and 30 September alone this year.

The warning signs are there, and with the ongoing frustrations and uncertainty surrounding Brexit, it cannot be emphasised more emphatically that businesses urgently need to look at their contingency plans as the rise in financial stress appears to be escalating at an alarming pace.

PCR provide regulated advice to assist company directors and business owners to make informed choices and hopefully enable you to work around the pressures that so many businesses are facing in the current climate.

Ahmed Ali

Marketing & Practice Development Executive 

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