A recent large spike in contract awards suggests the negative effects of the collapse of construction company ISG are still to come, says analyst Barbour ABI.

Contracts awarded for construction projects in the UK were up 76% to £10.7bn in September, thanks to two large infrastructure projects in the form of the Hornsea Offshore Wind Farm (£3.6bn) and the East Birmingham to Solihull Metro Extension (£735m).

Without these major projects, contract awards remain roughly in line with previous months, according to analysis by Barbour ABI.

This shows that the impact of ISG’s collapse in September has yet to fully impact the sector.

The industrial sector, where much of ISG’s on-site work resided, saw the largest proportional increase at 289% to £1.2bn after a dip in recent months.

Almost half of this value came from the £500m Gigafactory in the South-west.

However, Barbour ABI sounded a cautious note about the future.

“Looking forward, there continue to be some key risks to growth in the construction sector; continuing materials price inflation, skills shortages and an ageing demographic of construction workers,” said Barbour ABI head of business and client analytics, Ed Griffiths.

“Additionally, construction insolvencies are at their highest level since the financial crisis of 2008. Notably, this month saw Tier 1 contractor ISG fall into administration.”

“ISG’s headline-grabbing work on 69 ongoing central government projects is just the tip of the iceberg when you look at the full data set of the company’s contract portfolio. The ripple effect will be extremely worrying for the sector.”

Latest data showed residential contracts were rising in September, up 14% alongside a 9% increase in approvals.

However, Barbour ABI found new figures released by the government showed the extent of the challenge ahead for meeting housing targets.

“Analysis of the government’s latest housing supply data shows starts in Q2 were down significantly compared to the same period last year, with approximately 23k starts compared to 66k in 2023,” said Griffiths.

“Average completions over the past four quarters would add up to around 812k homes over five years should current levels continue. Well short of the 1.5m target set by the government for this parliamentary period.”

Planning approvals increased by 44% in September to £7.9bn, following a disappointing August.

Infrastructure saw the largest gain of 136% to £1.7bn, its highest month since October 2023.

Highlights included 700MW and 1000MW Battery Storage Projects in Scotland and the North-east respectively.

While application values for August were low, falling 45% to a total of £6.5bn, the decrease was made more dramatic by a high July boosted by large energy projects. This is shown by a monthly decrease of 78% in Infrastructure.

Griffiths added: “Planning figures returned to a more normal trajectory in August following a bumper July. This will be a key area to watch going forward to see if the ISG collapse has affected overall market appetite for new projects.”