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Construction insolvency rates fall

Fewer construction companies went broke in the latest quarter of this year than did in the second and the first quarters, according to figures from accountancy firm Grant Thornton.
The Q3 2009 provisional data, issued by the Insolvency Service shows 106,000 administrations of construction businesses, down 4.7% from the 111,000 construction in Q2 and down 13.2% from the 120,000 construction administrations in Q1.

More importantly, the figures show a 47.2% drop from the peak of 156,000 failures in the last quarter of 2008.

However, Kathryn Hiddleston, Head of Construction at Grant Thornton points out: “There has been a steady decline in the rate of business failures in the construction industry this year but the 106,000 failures in Q3 mirror the 104,000 failures seen at the same period last year. It is also not far off the 2008 average of 117,000 construction business failures, which means that there has yet to be a significant decline in construction businesses going under. Failures in construction companies are still at a high rate and remain a major concern for the industry, despite the recent decline.

“The tangible improvements in construction business failures may be partially driven by an upturn in the housing market as well as continued government infrastructure. However, rising unemployment and its effect on foreclosures indicates looming house price falls, which will undoubtedly impact the demand for construction businesses and services. Construction usually lags other sectors in recovering from a slump, so it is likely to fall much further before a real upturn is seen. Unfortunately this will not help the vast number of existing construction work which is now being considerably prolonged and even shelved.

“Hopefully, measures in the Pre Budget Report should act to mitigate some of the effects of the challenging climate being experienced by construction businesses. However, it remains important that they continue to remain focused on managing and sustaining their cash flow and finding effective ways of appropriately meeting customer demands.”

About Fiona Russell-Horne

Fiona Russell-Horne
Editor-in-Chief across the BMJ portfolio.

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