The construction sector shows signs of recovery with a decrease in insolvency rates, although challenges persist.
- Official data reveals 4,303 construction firms went insolvent in the year to July, marking the lowest annual total since 2020.
- Construction accounted for 16.9% of all insolvencies in England and Wales in July, despite being the sector with the highest insolvency numbers.
- In Scotland, construction insolvencies increased slightly while Northern Ireland showed figures with no sector breakdown.
- High interest rates and legacy project deliveries are highlighted as contributing factors to the current state of the industry.
The construction industry’s insolvency rate has exhibited signs of abatement, as evidenced by recent figures from the Insolvency Service. In the year leading up to July, 4,303 construction firms declared insolvency, resulting in the lowest annual total recorded since 2020. Despite this improvement, construction still constituted 16.9 per cent of all insolvent businesses in England and Wales during July, underscoring the sector’s ongoing vulnerabilities.
In the month of July alone, construction saw 397 insolvency registrations—signifying the highest number within any sector. In Scotland, the scenario was slightly different, with 24 construction firms entering insolvency, a rise from the previous year’s July count of 19. Meanwhile, Northern Ireland reported 20 insolvencies, although sector-specific breakdowns were not provided.
The Building Cost Information Service has pointed to persistent high interest rates and the fulfilment of legacy projects as principal factors influencing these figures. It should be noted that the Bank of England only opted to implement a base rate cut on the 1st of August, suggesting that any potential positive impacts on these factors remain forthcoming.
Interestingly, there are broader economic signals suggesting improvement, as the total number of business collapses across all industries fell by 7 per cent in July compared to the preceding month. However, this is juxtaposed against a 16 per cent increase when compared to July of the previous year, where 1,890 businesses failed.
In a commentary by Allan Wilen, economics director at Glenigan, he recognised the stabilisation in construction insolvencies as a constructive development, especially after a 4 per cent rise in 2023. Nevertheless, Wilen cautioned that a potential upswing in industry activity could exacerbate insolvency risks as increasing workloads may strain firms’ cashflows, thereby heightening the need for a diversified clientele.
The slowing rate of construction insolvencies offers cautious optimism, though underlying challenges remain.
