Construction continues to be the sector with the highest number of bankruptcies as high interest rates continue to squeeze companies | News

Construction retained its top spot as the sector with the most bankruptcies over the past 12 months as high interest rates continue to plague businesses.

According to the latest official data from the Bankruptcy Office, over 4,400 construction companies went bankrupt over the last year.

The sector accounts for around 18% of all UK insolvencies, closely followed by the wholesale and retail motor vehicle and motorcycle repair trade, which accounted for 16% of insolvencies in the last 12 months, with 3,906 companies failing.

Construction’s share has increased by 1% since last month, although the total number of bankruptcies fell from 4,274 recorded in the 12 months to April.

Kelly Boorman, national director of construction at RSM UK, said funding for construction companies remains tight because interest rates are not falling as quickly as needed and labor costs continue to rise.

“Margins are tighter than ever,” she said. “As the number of pipelines increases, so does the pressure of managing the lack of access to working capital needed to complete projects and the time required for mobilization, which are key factors contributing to the number of bankruptcies in the construction industry.”

Boorman added that the current geopolitical landscape increases market uncertainty around financing and infrastructure spending.

According to Boorman, access to the labor force is also expected to deteriorate during the summer months, meaning bankruptcies are likely to increase rather than decrease in the third quarter of the year, despite improving economic conditions.

“Therefore, the next government must prioritize reducing supply chain risk, reducing payment terms and ensuring transparency in infrastructure planning and spending, enabling businesses to make more informed and long-term development decisions when bidding for projects,” she said.

Mark Supperstone, managing partner at business consultancy ReSolve, warned: “With materials cost inflation receding, one would expect the future looks bright for these companies, however upward wage pressure remains and there is speculation that the base rate will be maintained until September.”

The total number of bankruptcies last month across all sectors was 2,006, down 6% from April and 21% lower than May 2023, the highest since October 2008 at the height of the financial crisis.