The number of UK construction companies at risk of closure has spiked 54% to 16,775 this quarter, up
from 10,686, according to data from Mazars.
In the last quarter alone, 5,900 more construction businesses have been added to the ‘at significant risk of insolvency’ category, as detailed by Mazars, an international audit, tax and advisory firm.
Surging prices for essential materials have had a significant impact on the construction sector, with many businesses struggling to fund essential supplies.
According to the UK’s Government’s Building Materials and Component Index, material prices increased 24.1% in the past year.
After the pandemic, the construction sector had exited in a weakened state, with supplies in essential materials such as bricks, timber, and cement severely disrupted. These costs continue to rise due to geopolitical factors, like the conflict in Ukraine.
On the same basis, 14.7% of construction firms reported that energy prices and bills remained one of their main concerns.
Rebecca Dacre, partner at Mazars, said: ‘The construction sector has been one of the hardest hit by inflation. Price rises for construction materials have had a huge impact on the ability of a construction company to control costs on a project.
‘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.
‘Many construction businesses took on more debt to get them through lockdown. Due to interest rate rises, they are now seeing the cost of these debts soar, just as the economic outlook is worsening.’
Construction companies, like many sectors of the UK economy, are also struggling to hire enough labour, causing a further blow to companies’ cash flow, and hindering their ability to complete projects on time and get paid.
Regions like East Anglia, the South West and South East have seen the largest increases in the construction businesses at risk, with 74%, 72% and 58% increases respectively.
Dacre added: ‘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.
For many businesses across the construction sector, government help with energy bills cannot come soon enough. Some will be trying desperately to hang on until the relief package kicks in.