Construction and property are worst hit sectors as government spending cuts take toll on finances

More than 30,000 property and construction firms are experiencing critical financial problems, according to a report by business recovery specialist, Begbies Traynor.

In the final quarter of 2010, 33,149 construction and property based firms were experiencing financial distress, an 18% increase on the third quarter, when 27,991 were in the same situation.

Cuts to government spending are thought to be responsible for the deteriorating state of finances in the sector, which has come at a time when materials costs are still on the increase and tender prices have yet to recover.

Rising interest rates, which may be needed to see off the threat of ever higher inflation, could be the final nail in the coffin for a number of firms.

This could result in a further hit to the sector, right at a time when it is getting to grips with the spending cuts and before private sector recovery has taken hold.

Commenting on the report Nick Hood, partner in Begbies Traynor, said: “Construction and property are the worst hit sectors in the UK economy.

“The real concern is not just that the sector has fallen away since Q3 2010, but that it is 13% worse than a year ago, the biggest deterioration across the economy.

“With much anecdotal comment about below-cost pricing as contractors scrabble to secure work at any price to contribute to their fixed costs and as the boost to activity levels from Olympic projects wanes, the prospects for 2011 look very challenging.”

While the Begbies Traynor report contained only bad news, a separate report from accountancy firm Wilkins Kennedy said the number of insolvencies in the sector has actually fallen.

In the third quarter of 2010, 1,470 firms became insolvent in the construction sector, compared with 1,685 in the third quarter of 2009 - a fall of 13%.

Despite this improvement, Wilkins Kennedy suggests this is because a large number of firms have already gone bust over the last three years.

Anthony Cork, a director at Wilkins Kennedy, said: “Construction sector insolvencies are down because so many of the weaker construction companies have already been driven to the wall over the last three years.

“The pre-recession bubble in the economy was largely property led so when the bubble burst, much of the construction industry was left reeling,”