May 30, 2011 / 11:04 PM / 8 years ago

UK building firms buckle under public sector cuts

* Private sector business not filling the gap-report

* Q1 insolvencies up 19 percent

* First quarterly rise in two years

* Total value of new work falls 39 percent

By Lorraine Turner

LONDON, May 31 (Reuters) - Insolvencies in the British construction sector surged in the first quarter, rising for the first time in two years and raising fears that government cuts were hitting the sector harder than first feared.

The number of businesses going bankrupt climbed 19 percent to 948 from 796 in the prior quarter as fiscal stimulus for infrastructure projects dried up, according to a report from Wilkins Kennedy.

Government plans to scrap public sector building programmes, such as Building Schools for the Future, has fuelled bankruptcies and fears of a prolonged downturn. [ID:nLDE67C12N]

“The government has slashed capital spending on infrastructure across the board in order to plug the deficit and that has pushed the construction sector into a double dip,” said Anthony Cork, director at Wilkins Kennedy.

“The question now is how quickly private sector construction work will be able to pick up the slack left by the public sector. So far this has not happened,” he added.

The total value of new work awarded to UK construction companies fell 39 percent to 21 billion pounds ($35 billion) during the 12 months to May, according to research from Barbour ABI.

Public sector spending on construction projects represents 40 percent of the industry’s turnover.

The Office for National Statistics said construction output fell 4.0 percent in the first three months, less than the initially reported drop of 4.7 percent but still the biggest quarter-on-quarter decline since the start of 2009. [ID:nLDE74A1I5]


Graph: Correlation between construction PMI and GDP growth:


Industry surveys, however, show construction bounced back after a snow-hit December and has grown steadily since the start of this year. [ID:nLDE74A1I5]

The effects of the cuts will be widespread, as larger companies that have typically won key public sector contracts will slash their prices, driving down the rates of smaller firms.

“Many companies could be forced to pass their pain down through their supply chain, which will have a big impact on sub-contractors, electricians, plumbers and builders’ merchants,” said Cork.

Since Autumn last year, companies such as Rok, Connaught, John Laing Partnership and CJ Haughey Construction have gone into administration.

The number of British companies in serious financial distress soared in the first quarter according to a report from Begbies Traynor (BEG.L). [ID:nLDE73C091] (Reporting by Lorraine Turner; Editing by David Cowell) ($1 = 0.6069 pound)

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