The construction sector is facing an “opaque” 2025, as increased building costs and mortgage rates hold back its recovery.
In light of the latest official statistics on insolvency rates, analysts warned of “further issues to be addressed” before the sector’s business failure rate falls.
The Insolvency Service said the construction industry suffered the second largest number of insolvencies of all sectors in November, with 316 firms going under. That is slightly less than the 319 total for October, but still above the 300 marker, having dipped to 291 in September.
Only the accommodation and food service activities sector suffered more insolvencies in November, at 327.
The data for November does, however, represents a steep drop in the number of insolvencies on the same month in 2023, when 422 construction firms went under.
But construction still accounted for the highest number of insolvencies in the year to November, hitting 4,102. That is nearly 500 more than the next biggest total of 3,618 for the wholesale and retail trade industry.
Last month, the Insolvency Service reported that 4,208 construction firms went into administration in the year to October.
Mark Supperstone, a partner at accountancy firm Evelyn Partners, warned that “persistent issues” such as increasing building costs and mortgage rates “might delay any emergence of green shoots for a good part of the year”.
He also pointed to a number of policies that “could signal some improvement for local contractors”, such as the government’s commitment for 1.5 million new homes to be built by the end of the current parliament, as well as a programme of planning reform. Supperstone warned that the sector’s outlook for 2025 “remains opaque”.
“There are clearly further issues to be addressed should corporate insolvencies in the sector begin to materially subside,” he added.
“As always, I would urge directors of struggling firms to seek advice early to ensure the best outcome in these difficult times.”
RSM UK’s national head of construction, Kelly Boorman, said the sector’s debt burden was not easing yet, with the effect of labour shortages set to be “exacerbated” by forthcoming increases to employer’s National Insurance contributions, announced in the Autumn Budget.
Boorman joins a growing group of industry leaders to warn that the change will hit the sector hard.
“For companies planning ahead, access to funding will not be any easier, despite pipelines being strong, as they need to consider interest rates and cost of debt, which are still a challenge,” she added.
Boorman warned that the sector could face an “overtrading trap”, as it will be difficult to raise the working capital needed to deliver projects when strong pipelines of work materialise this year.
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Joshua Stein