The construction industry in England and Wales is facing unprecedented financial challenges, with insolvencies reaching an alarming peak.
- In the year leading up to April 2024, a staggering 4,401 construction firms declared insolvency, making it the hardest-hit sector in the financial landscape.
- Construction outpaced other struggling industries like wholesale and retail, which saw 3,906 insolvencies, and accommodation and food services with 3,821 cases.
- Contributing factors include high interest rates, increasing labour costs, and political uncertainties impacting project pipelines and working capital.
- The pressure is predicted to increase with expected construction insolvencies rising in the third quarter of 2024 due to ongoing financial and political challenges.
The construction sector has emerged as the most affected industry by insolvencies in the period leading to April 2024, according to the Insolvency Service. Data revealed that 4,401 construction companies, accounting for 18% of all business insolvencies, ceased operations during this time. This number significantly surpasses the insolvency figures of other industries, positioning construction at the forefront of financial distress within the market.
Following construction, the wholesale and retail industry reported 3,906 insolvencies, while the accommodation and food services sector experienced 3,821 insolvencies, marking them as the second and third most affected industries, respectively. In April 2024 alone, the construction industry saw 399 insolvencies compared to 315 in March, indicating a rising trend of financial instability.
Kelly Boorman, RSM UK’s national head of construction, highlighted multiple factors aggravating the financial strain on construction firms. She expressed concerns over tight funding conditions exacerbated by persistently high interest rates and rising labour costs, which are eating into profit margins. Boorman identified challenges such as restricted access to working capital and extended mobilisation times as critical issues contributing to the insolvency surge.
Political uncertainties further compound these financial difficulties. The combination of fluctuating payment times and a worsening labour supply forecast for the summer months underscores the precarious state of the industry. Boorman anticipates a continued rise in insolvency rates into the third quarter of 2024 unless measures are taken to stabilise the sector.
Jo Streeten, Aecom’s managing director for building and places, provided additional insights, cautioning about potential economic slowdowns following April’s economic stagnation. She emphasised the importance of effective cost management for contractors in navigating the challenging conditions until any anticipated political clarity or strategic infrastructure planning is realised. With a looming election, the construction sector remains hopeful for a supportive infrastructure strategy.
The construction industry faces significant financial challenges, demanding urgent governmental intervention and strategic planning to mitigate rising insolvency rates.
