Number of UK construction companies in critical financial distress jumps 70% as economic pressures mount

The number of UK construction companies deemed to be in “critical distress” has risen sharply year-on-year, according to insolvency practitioners Begbies Traynor.

The firm’s ‘Red Flag Alert’, which measures companies’ financial strength, shows there were 7,361 construction companies in critical distress at the end of the third quarter, up 70.2% on the same period last year. The figure is however lower than the 78% increase for companies of all sectors.

The number of construction firms deemed to be in ‘significant’ distress – the second most serious category – rose 14.6% over the same period.

Julie Palmer, managing partner at Begbies Traynor, said: “As the number of businesses in ‘critical’ distress continues to soar and unemployment figures look to be on the rise, boardrooms across the UK need this next budget to release pressure and uncertainty from their financial outlook.

“The construction industry is no exception, with tricky economic climate, rising costs, skills gaps and soaring demand continuing to put pressure on businesses of all sizes. Whilst there are some larger players continuing to grow, many in the SME space are close to the wire and will have to seek restructure, refinance or an exit.”

The areas of the industry hit hardest by ‘significant’ distress in the past year were companies delivering ‘specialised design activities’ (an annual rise of 23.5%), ‘development of building projects’ (23.17%) ‘Plumbing, heat and air-conditioning installation’ (+17%), ‘Electrical installation’ (16.%) and construction of domestic buildings (9.9%).

Red Flag Alert’s credit risk scoring system screens companies for a sustained or marked deterioration in key financial ratios and indicators, including those measuring working capital, contingent liabilities, retained profits and net worth.