THE number of construction firms in Scotland in “critical distress” in the first quarter of this year is up 560 per cent on the same period of 2018, a key survey shows.
And there was a 136% year-on-year rise in the total number of Scottish companies in this type of advanced distress during the first quarter - a much sharper increase than a corresponding 17% rise for the UK as a whole - according to insolvency specialist Begbies Traynor’s Red Flag Alert.
The report shows that 33 Scottish construction companies were in critical distress in the first quarter, up from only five in the opening three months of last year.
Begbies Traynor cited a “lack of clarity about the future” as one factor weighing on Scottish businesses.
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The business community in Scotland, and across the UK as a whole, has faced deep and protracted uncertainty over Brexit. The Chartered Institute of Procurement & Supply (CIPS) has highlighted the dampening impact of such uncertainty on activity and orders in the construction sector in the UK as a whole in recent times.
Ken Pattullo, who leads Begbies Traynor in Scotland, said: “Once again, the construction industry is bearing the brunt of the slowdown, with building companies in Scotland faring worse than [those] in the rest of the UK. This is particularly worrying as the sector often acts as a barometer for the overall health of the economy.”
Businesses deemed to be in critical distress, in the Red Flag Alert report, are those which have had winding-up petitions or decrees totalling more than £5,000 against them.
There was also a sharp year-on-year rise in critical distress among travel and tourism firms in Scotland. The number of such businesses in critical distress in the first quarter was up by 100% on the same period of 2018, compared with a 50% year-on-year rise in firms in this sector facing such difficulty in the UK as a whole. There was also a 100% year-on-year rise in the number of firms in critical distress in Scotland’s financial services sector in the first quarter, in contrast to a 1% increase UK-wide.
Begbies Traynor noted that, in spite of the 136% year-on-year jump in the overall number of Scottish companies in critical distress in the opening three months of this year, the quarter-on-quarter rise was just 3%. This was a slightly less-sharp increase than the corresponding 6% quarter-on-quarter rise in the number of firms in critical distress in the UK as a whole.
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Mr Pattullo said: “It appears that the trend of escalating advanced distress among businesses in Scotland which began last year is continuing, although at a more modest rate.
“Unfortunately, businesses need certainty in order to plan effectively and to prosper, and the ongoing lack of clarity about the future is having a very negative impact on businesses here.”
He added: “While the latest ONS (Office for National Statistics) figures for the final quarter of 2018 show that the Scottish unemployment rate hit a record low, there are concerns that we are seeing growing redundancies as more businesses fail, and this too will have a negative impact on the economy.”
In the first quarter, 25,664 companies in Scotland showed “significant” or early-stage distress. This definition covers businesses with “minor” decrees against them of less than £5,000 or showing a sustained or marked deterioration in key financial ratios and working-capital indicators.
This first-quarter figure was up by 2% on the same period of last year and 1% higher than in the preceding three months, which Begbies Traynor noted was in line with the UK-wide picture.
A survey published earlier this month by CIPS showed UK construction activity fell for a second straight month in March amid widespread reports from companies in the sector that Brexit uncertainty and concerns over the UK economy’s prospects had fuelled risk-aversion. Civil engineering and commercial property construction activity both fell last month, more than offsetting faster but nevertheless still-modest growth in the housebuilding sub-sector.
CIPS director Duncan Brock said: “The fault of this continuing inertia was placed squarely at the feet of Brexit.”
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