Build cost inflation was the scourge of the construction industry in 2022 and 2023, causing fixed-priced contracts to become loss-making and jittery clients to pull the plug.
This year it has generally been under control, or so we thought, but it might be about to return.
The business costs of the chancellor Rachel Reeves’ decision to increase employers’ national insurance contributions, announced in the budget last week, is expected to be passed on the customers. As Dr David Crosthwaite, chief economist of the Building Cost Information Service (BCIS), told the Re:Construction podcast last week (Ep.164), the national insurance increase will prove to be inflationary. The only question is: how bad it will be.
House-builders might already be seeing it.
In a trading statement today Persimmon said: “As we move into 2025, we remain optimistic about our growth prospects although the quantum and timing of future interest rate changes is uncertain and we continue to assess the implications of the recent budget.
“We are seeing some signs of build cost inflation beginning to emerge in price negotiations for 2025 and are working closely with our supply chain to manage our costs, which will also be impacted by new building regulations and the employer national insurance increases announced in the recent budget. We are seeking to mitigate the impact of these cost increases through robust commercial controls and other management actions.”
