Economic Recovery Drives Growth and Productivity
- - Number of UK construction companies grew by 5.6% in 2014
- - Output from the industry grew by 7.4% in 2014 - its strongest expansion since 2010
- - 4,441 construction firms went out of business last year, but 15,805 new companies set up shop
The UK construction industry is benefitting from the ongoing economic recovery that appears to be driving increased volumes of building and repair projects across both residential and industrial sectors, according to new analysis from Creditsafe, the world’s most used provider of company credit reports.
While Creditsafe’s figures show the number of construction companies growing by 5.6% from 203,157 to 214,521 in 2014, additional new figures from the Office of National Statistics (ONS) demonstrate that despite a slowdown in housebuilding in the last quarter, output from the construction sector rose by 7.4%, the strongest expansion since 2010.
A further indicator of the changing profile of the creditworthiness of construction firms was the fact that just 5% were in Creditsafe’s highest risk band at the end of 2014 compared to11% at the start of the year while nearly a quarter (some 23%) were found in the lowest risk band compared to just 13% in 2013*.
Creditsafe’s analysis shows that despite the growth in numbers of companies as well as their productivity, there continues to be a high proportion of bad debt in the industry. The total value of outstanding County Court Judgments (CCJs) currently held against construction companies is over £31 million, while 8,080 construction companies have either outstanding or satisfied CCJs held against them with an average value of some £5,410. In addition firms in the construction sector continue to be late payers with on average invoices being settled some 17 days beyond their due date.
Rachel Mainwaring Operations Director of Creditsafe said: “The construction sector is often seen as a bellwether for the economy as a whole as it is driven by demand for more homes and business premises. It is encouraging to see growth in both the number of construction companies operating in the UK and in their productivity and annual output. However, as our analysis shows, late payment and bad debt is a big problem in the industry and it pays to understand as much as possible about a construction company’s financial health before going to business with them.”
The construction sector has been on a rollercoaster ride since 2008 when the recession began, with work on new projects pulled and delayed as funding dried up. According to public figures**, output in the construction sector fell faster than the whole economy in 2008. Poor weather over the past few years has also played its part, including the severe windy and rainy conditions experienced in the winter of 2013/2014, which prevented private house builders from completing new estates in time.
On the upside, the construction industry has been stimulated by Government intervention in the form of the Help to Buy programme and the announcement of reforms to stamp duty land tax rules applied to bulk purchases as well as measures to remove barriers to entry for new Real Estate Investment Trusts (REITs).
* Creditsafe’s rating bands are classified as follows:
- 1-20 High Risk
- 21-29 Medium-High Risk
- 30-50 Medium Risk
- 51-70 Medium-Low Risk
- 71-100 – Low Risk
** The construction industry: statistics and policy Standard Note: SN/EP/1432 Last updated: 29 December 2014.
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