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Construction sector steadies but long road ahead

The number of administrations in the construction sector fell 16 per cent from 101 to 85 in the second quarter of the year

The announcement curbs the rising trend of the previous three quarters, and returning to the level seen at the same time last year.

Rupert Rawcliffe, construction sector director at finance and business advisors Grant Thornton UK LLP comments: “The disturbing trend of increasing construction business failures for three consecutive quarters has finally been curbed with a 16 per cent fall in administrations in Q2 2011 compared to Q1.

“Construction businesses are usually the first to feel the pain when the economy is hit. As such, the spike in Q1 2011 highlights the severe impact bad weather conditions had on the industry -  as work was put on hold, cash-flow suffered and those businesses that were already on the  brink tipped over the edge.

“In contrast, Q2 marked the hottest April for 100 years and as projects got moving again confidence picked up.

“With overall corporate failures rising slightly in Q2 2011 across the UK economy, the fall in construction administrations during this period demonstrates a resilience among businesses in this sector. As recession hits construction first these companies are battle hardened and are fighting very hard to compete.  They will have an absolute focus on managing cash flow and will have learnt how to maximise funding via leveraging their assets via asset based lending and specialist finance.  

“The still high number of failures does however reflect the tough economic environment and is now no worse or better than we saw during the first part of last year. Construction firms have seen work levels remain low and margins remain under pressure with the workforce now intensively deployed, stretching resources.

“This also mirrors the results of the Grant Thornton/ICAEW Business Confidence Monitor (BCM) from Q2 which showed that sector confidence has increased marginally since the beginning of 2011 but remains cautious,” Rawcliffe concluded.