According to the Begbies Traynor Red Flag Alert report, 5,919 construction companies in the UK are in danger of going out of business
The report also states that 72,257 companies (20% of the total construction companies in the UK) are in a less critical but still concerning state of financial distress.
The real estate and property services sector is also experiencing significant challenges, with 4,994 companies in critical distress. This represents a sharp 38% increase between the second and third quarters of the year, with an additional 51,240 companies in significant distress.
Concern for construction companies in the UK is widespread
In 2021, 353,365 firms were operating in the construction sector in the UK, according to the Office for National Statistics. Begbies Traynor’s data shows that approximately 1.6% of these companies are currently on the verge of going out of business, while one in five companies are facing significant financial distress.
“Tens of thousands of British companies are now in financial dire straits now that the era of cheap money is firmly behind us,” commented Julie Palmer, a partner at Begbies Traynor.
“Businesses that had loaded up on debt at rock-bottom rates and were only able to cling on during the pandemic thanks to government support must now deal with a financial reality check as higher interest rates hit working capital for the foreseeable future,” she explained.
Economic challenges have hurt the sector
The cause of the situation can be attributed to economic challenges such as rising interest rates, inflation, and a decrease in consumer confidence. These challenges are no longer limited to consumer-facing sectors and are increasingly widespread, particularly in the construction sector. It is also a likely consequence of the ongoing decline in the residential housing market.
The construction and real estate sectors account for nearly 30% of all companies in financial distress. Financial distress is defined as having county court judgments exceeding £5,000.
“The current combination of macro-economic risks is piling on the pressure and really starting to take its toll on UK businesses, as evidenced by the latest research data from Red Flag Alert,” Ric Traynor, executive chairman of Begbies Traynor.
“I am hopeful that stabilising inflation and interest rates will start to slow the rising levels of economic distress in due course. However, history dictates that this will take some time, and insolvencies often peak long after a recovery has started. Unfortunately, for many businesses, time is not on their side,” he concluded.
