Report Shows Worse to Come for Construction Industry

Multiple construction firms are among a staggering 554,554 UK businesses currently classed as being in “significant financial distress” according to the latest Red Flag Report. This represents a 30.8% increase from 12 months ago, extinguishing any hopes previously held of an economic uplift during Q1 2024.

Tellingly, such struggles are now being reported across all 22 of the sectors that the Red Flag Alert covers. The new report showed that every sector saw a rise in financial distress by at least double digits. However, while no industry is immune to current economic headwinds, some seem to be at particular risk.

It’s little surprise to see that the construction industry features prominently on the list, with a 38.6% increase in numbers over the last year. The report reveals that 83,559 construction companies currently find themselves in “significant financial distress”. Perhaps more worrying for the sector, is the fact that it tops the list of industries with the most companies in “critical financial distress” too. Begbies Traynor categorise this classification as “much more serious” and “especially vulnerable to failure over the next 12 months”.

An “elevated risk” for construction firms

Ben Westoby, senior client manager at Forbes Burton, explained that the construction industry has been in trouble for some time. He added that “in sectors such as these, there is an elevated risk of cash flow issues arising. The acceptance of new construction jobs requires a significant outlay in materials and resources, and this can be problematic if clients are slow to pay invoices.

“We’re seeing construction companies big and small folding at an alarming rate. With over 83,000 businesses in the sector listed as being in significant trouble now, 2024 could end with far fewer operating than we’ve had for some time”.

Closely behind the construction industry in the list of sectors in critical financial distress are support services and real estate and property services. We’ve previously reported on how the rise in mortgage rates had impacted upon UK estate agencies in 2023, but continuous economic headwinds have only worsened matters.

Retail and hospitality sectors also fared badly on the critical list. The autumn budget’s announced raising of the minimum wage will likely only speed up the route to insolvency for many in both industries.

Elsewhere in the report, London-based businesses may initially worry about topping the chart of regions most affected by companies in financial distress. A closer look at the lists however, shows that these are arranged by the number of businesses affected in each region. As London comfortably houses many more companies than other regions though, this is far from a surprise, and perhaps a little unfair.

Have you noticed issues arising in the construction industry?

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