In the most recent quarter, 54% more construction enterprises were in danger of failing.
Thousands of construction companies in the United Kingdom are “desperately hanging on” until the government’s energy relief package kicks in due to excessive prices and unsustainable debt.
According to data from accounting company Mazars, the number of companies with a high likelihood of becoming insolvent has soared over the previous three months, with 5,900 businesses being added to the category.
It brings the total number of distressed construction enterprises to 16,755, up 54% from the previous quarter’s tally of 10,686.
Expected rate hikes by the Bank of England might put enterprises with huge debt loads at a high risk of insolvency.
As a result of the Russian invasion of Ukraine, Rebecca Dacre, a partner at Mazars, accredits the increase in the number of at-risk businesses to the escalation in material costs.
Dacre stated that the government’s assistance for firms’ energy expenses could not come soon enough and that “some will be trying desperately to hang on until the relief package kicks in”.
In July, the government’s index of building materials and components registered inflation of 24.1%, making it harder for businesses to regulate project costs.
Dacre stated, “They are now faced with the dilemma of how they recover costs soaring away on a fixed price contract,”
“Poor cashflow is an endemic problem in the construction industry so it doesn’t take much to undermine the solvency of many construction companies.”
Construction companies, many of which took on additional debt to survive the pandemic, could suffer further consequences from anticipated interest rate hikes
The market predicts that interest rates will exceed 4% by the end of the year, with the Bank of England convening on November 3 and December 15 to vote on rates. Currently, interest rates have risen to 2.25 percent.
“Rising interest rates may hit new build residential property builders at the worst possible time, as consumer appetite to take on more expensive mortgages will cool.”
East Anglia, the South-West, and the South-East have seen the highest rises in construction businesses at risk, with 74%, 72%, and 58% increases, respectively, according to statistics from Mazars.