Worrying outlook for construction sector
A MIDLANDS-based business restructuring specialist has said a recent fall in construction business failures belies major concerns ahead for the sector.
David Bennett, a partner in Grant Thornton’s recovery and reorganisation team, was commenting on provisional data for administrations in the construction industry in the second quarter of 2010.
Mr Bennett said: “Despite the fact that there were fewer construction business failures in the industry in the second quarter, I believe there are severe difficulties ahead for an industry which has already suffered significantly over the last 24 months.
“Although administrations in the sector have fallen for more than five consecutive quarters, construction companies now face the spectre of worsening economic conditions, particularly if more infrastructure and building projects are adversely affected by the Government’s Comprehensive Spending Review, due to be published on October 20.”
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He said that couple this with recent reports of the first fall in house prices since last summer, then waning consumer confidence and the construction trade’s reported drop in output for 2010 amounted to a grim looking picture for the construction sector, both in the short and medium terms.
“The vast majority of construction companies are already operating on very lean margins and have cut costs wherever they have been able to, but all must now look to conserve as much cash as they can, review their cost bases for any further savings and look at contingency planning as a matter of urgency,” he said.
The second quarter provisional data, issued by the Insolvency Service, shows 86 administrations of construction businesses. This is a 1.1% fall from the 87 construction company failures in Q1 2010 and a 4.4% decrease from the 90 administrations in Q4 2009. This is also a 22.5% drop from the 111 businesses that collapsed in Q2 last year.
