In the first half of 2023, administrations in the construction industry accounted for 11% of all cases in the UK
Administrations in the construction industry were the third highest of any sector, according to a study from Shakespeare Martineau.
759 businesses filed for administration between January 1st and June 30th, 2023. Among these, 85 were from the construction industry, representing a 22% increase compared to the previous year.
Retail, manufacturing, hospitality, real estate, and construction made up 57% of all administration cases. Greater London had the most filings at 25%, followed by the North West at 15% and the South East at 11%.
Administrations in the construction industry may continue to rise
The number of administrations is still below the levels seen before the Covid-19 pandemic.
However, experts in insolvency and restructuring have warned that more businesses could face failure unless inflation is managed and interest rates stop rising.
“Given the prolonged economic uncertainty that is plaguing the country, the increase in the number of businesses filing for administration is no surprise,” said Andy Taylor, partner and head of restructuring at Shakespeare Martineau.
“HMRC is definitely taking a harder line than in previous periods, and its threat of enforcement is certainly pushing some businesses towards considering their options, with some seeking administration as an alternative to facing a winding up petition,” he continued.
Why have administrations increased?
Many sectors are grappling with the impact of rising interest rates and inflation, and lower consumer spending is reducing footfall. Businesses are also facing higher costs from borrowing and energy.
The Bank of England recently announced the 14th consecutive interest rate hike, raising the benchmark from 4.5% to 5%. Many predict UK interest rates to hit 6% by year-end.
Geopolitical uncertainties have also damaged business in the UK, leading to reduced cash flow and increased risk. Supply chain disruptions and import expenses have also made profitability harder to achieve.
Greater London remains the highest region for administrations. The North West overtook the South East in second position, and the West Midlands replaced the East of England in the top five.
“Our advice remains consistent – seeking professional advice early can open up more options for struggling businesses,” added Taylor.
“It is crucial not to ignore the signs and bury your head in the sand, and, instead, take a proactive approach to address underlying issues. By doing so, businesses can better navigate the tough trading conditions and increase their chances of survival,” he continued.
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