Debt Industry News – Double dip for construction sector. Insolvencies up

The number of businesses going bankrupt in the UK construction sector has jumped by 19% in Q1 2011 which is up from a total of 796 bankruptcies in the previous quarter (Q4 2010).

The figures, complied by Wilkins Kennedy a Top 30 UK accountancy firm show that for the first time in two years the quarter on quarter insolvency figures have risen, signalling fears of another prolonged downturn for the sector and the resurfacing of the dreaded ‘double dip’ term.

Wilkins Kennedy explains in their release of the figures that the root cause for the downturn is the cancellation of public sector building programmes such as the Building Schools for the Future initiative which has driven the rise in the number of construction firms going under.

Experts estimate that public sector spending on construction projects represent about 40% of the industry’s total turnover and that the Government is committed to halving this further, with more than £90bn of capital spending cuts planned between now and 2014.

Anthony Cork, Director at Wilkins Kennedy, commented that: “The Government has slashed capital spending on infrastructure across the board in order to plug the deficit and that has pushed the construction sector into a double dip.”

The key question of the industry now is whether or not private sector construction projects will be able to pick up the slack left by the public sector? As of yet, this has failed to materialise and Experian’s latest Insolvency Index which includes more in-depth figures on the construction industry will be released shortly, thereby shinning more light on the beleaguered industry.

The property market outside of London’s high end remains challenging, hotel construction in London fell 73% year on year, industrial and office construction starts are down 35% and 20% respectively as investors remain cautious against the backdrop of the weak economy and high inflation and with residential construction was down 29% it is difficult to see where the construction industry can increase its scope and pick up the slack.
As a point of fact, the only sector to buck the trend was the supermarket chains which has seen a 13% year on year increase in construction starts as the major chains press ahead with their expansion plans. It is doubtful this alone will save the remaining industry and analysts are predicting more sector administrations.

Some high profile scalps already claimed in the construction industry were ROK Plc in Nov 2010, Connaught Plc in Sept 2010, John Laing Partnership Limited in Oct 2010, CJ Haughey Construction Dec 2010 and Carvill Group just last month.

With the sector being tipped to have its own double dip and likely fuel the flames of a UK wide double dip now more than ever is it critical to ensure that businesses have robust debt recovery, credit control and cash flow systems in place ahead of more uncertain times.

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