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Construction insolvency warning

Construction businesses have been warned to brace themselves for tough times ahead despite the fledgling economic recovery, with a high rate of insolvencies reported.

Insolvency Service statistics show the number of building firms going bust in England and Wales was falling in 2009, with 90 administrations in the final three months of the year.

This compared with 106 construction business failures in the third quarter and 111 failures in the second quarter.

Overall, 2009 saw construction business failures reach 427, which was an 8.8% fall from the 468 failures seen at the end of 2008.

Head of construction at financial and business advisers Grant Thornton, Phil Westerman, said: “It is always positive to see tangible improvements in the construction sector and it is a big surprise that the figures in the fourth quarter are not worse given the adverse weather conditions experienced in December.

“Construction business failures are still relatively high and averaged 106 business failures per quarter in 2009. Although this is lower than the 2008 average of 117, this continues to be a major concern for the industry.

“Despite house prices in Britain showing some signs of recovery and the Government’s commitment to boost infrastructure, mortgage providers are still requiring a high level of deposit, from first-time buyers in particular.

“Coupled with the ongoing economic uncertainty and the impact this is having on the pipeline for future work, trading conditions for the construction sector during the first half of 2010 and beyond are expected to remain difficult.

“Even though the UK has officially come out of recession, the construction sector often lags behind others in recovering from a downturn so we may therefore see an increase in business failures before things significantly improve,” he said.

Company failures soared to their highest level for 16 years in 2009 with 19,077 firms going into liquidation, up 23% on 2008 and the worst result since 1993.

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