300% rise in critical distress for Scots construction firms

There has been a fourfold increase in the number of Scottish construction firms showing advanced signs of financial distress, as new figures point to difficulties across the wider economy.

Picture: JP

Research for April to June showed a 300 per cent increase in the number of construction businesses in “critical” distress in Scotland, compared with the first quarter of 2018, with business recovery experts warning directors to “prepare for tough times”.

The report defined a business as displaying signs of critical distress if it had a winding up petition or decree totalling more than £5,000 against it.

Scottish construction’s massive increase is in stark contrast to a quarterly rise of 10 per cent in the construction sector in the UK as a whole.

The figures are part of the quarterly Red Flag Alert data published by business recovery firm Begbies Traynor.

Ken Pattullo of Begbies Traynor in Scotland said: “These latest figures reinforce the slowdown in the construction sector which we have been seeing, borne out by the recent construction insolvencies here.

“The quarter-on-quarter increase in advanced or critical distress is particularly stark, and doesn’t bode well either for construction firms or for the many other businesses, such as suppliers and subcontractors, which depend on them.”

After a year of slowing growth for businesses in general in 2017, the trend seems to have continued into this year as Scotland has seen a rise of 77 per cent in critical distress for companies across all sectors since Q1, while UK-wide figures increased by 10 per cent.

Across the UK, 472,183 businesses are experiencing “significant” financial distress, such as showing marked deterioration in key financial ratios, up 9 per cent compared with the previous year.

Separate figures suggest that some 50,000 jobs have been lost in the first half of the year, as high street giants such as House of Fraser, Toys R Us and Poundworld collapsed.

Pattullo advised business directors to move forward cautiously. He said: “After a tough start to the year with a poor first quarter exacerbated by the Beast from the East, the economy appears to be starting to stabilise across many sectors.

“However, with continued uncertainty about the impact of Brexit, together with consumers feeling a squeeze on household incomes, showing no sign of abating, this lack of confidence is likely to keep the economy in the doldrums.

“Despite a welcome boost from the royal wedding and some warmer weather in recent months, UK manufacturing growth has fallen since last year and as inflation continues to grow, there is increasing pressure to raise interest rates.

“With little hope of a resurgence for the economy in 2018, directors would be well advised to proceed with caution and prepare for tough times ahead.”