Construction still the sector with most insolvencies as high interest rates continue to squeeze firms

Construction has maintained its top spot as the sector with the highest number of insolvencies over the past 12 months as high interest rates continue to batter firms.

More 4,400 construction companies have gone bust over the past year, according to the latest official figures from the Insolvency Service.

The sector accounts for some 18% of all UK insolvencies, closely followed by the wholesale and retail trade in the repair of motor vehicles and motorcycles, which has made up 16% of insolvencies over the past 12 months with 3,906 insolvencies firms going under.

Construction’s share has increased by 1% since last month, although the total number of insolvencies has dropped from the 4,274 logged for the 12 months to April.

Kelly Boorman, national head of construction at RSM UK, said funding was still tight for construction firms as interest rates have not come down as quickly as needed while labour costs are continuing to rise.

“Margins are smaller than ever,” she said. “With pipelines continuing to grow, there’s an increasing tension from managing lack of access to working capital to deliver projects and the time taken to mobilise, both key contributors to the number of construction insolvencies.”

Boorman added that the current geopolitical landscape was adding to market uncertainty in terms of funding and spending on infrastructure.

Access to labour is also expected to worsen during the summer months, according to Boorman, meaning that the number of insolvencies will likely increase during the third quarter of the year rather than ease, despite improving economic conditions.

“The next government must therefore prioritise de-risking the supply chain, reducing payment terms, and provide clarity on infrastructure planning and spend, enabling businesses to make more informed and long-term growth decisions when bidding for projects,” she said.

And Mark Supperstone, managing partner at business advisory firm ReSolve, warned: “With easing material cost inflation, one would expect the future to be looking up for these companies, however wage growth pressures persist and there is speculation that the base rate is to be held until September.”

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