ILC ARTICLE

Construction sector in acute ‘distress’

4th February 2022

A new report has found that construction is the second most distressed sector in the country, with 75,825 individual companies under significant financial strain.

Begbies Traynor has published its ‘Red Flag Alert’ for the past 15 years, which aims to highlight the financial health of UK companies. Its most recent edition has identified more than half a million companies (589,168) reporting significant financial distress in the final quarter of 2021.

This is a five per cent increase on the previous three months, while the number of companies in ‘critical’ financial distress, or on the brink of failure, was up seven per cent.

The Red Flag Alert attributes this rise to an end of government support schemes that were put in place during Covid-19, and is warning that rising inflation during 2022, which it says could be much higher than the official 5.4% rate, will create a perfect economic storm that will ‘undoubtably drive insolvency rates higher.’

Julie Palmer, partner at Begbies Traynor, said, “The construction sector looks particularly vulnerable as raw material availability, combined with record inflation, has significantly reduced the margins for many SMEs. We are also seeing evidence of over‐trading within construction as the sector’s boom post‐lockdown has caused real cashflow issues that are now impacting on businesses.”