Persimmon, a leading house-builder, foresees a resurgence of build cost inflation impacting the construction sector.
- During 2022 and 2023, build cost inflation led to challenges with fixed-price contracts and client withdrawals.
- Recent government decisions, such as the increase in national insurance contributions, are expected to exacerbate inflationary pressures.
- Persimmon remains hopeful about growth, though interest rate fluctuations and regulatory changes pose uncertainties.
- Efforts are underway at Persimmon to mitigate cost increases through supply chain management and commercial strategies.
In a recent announcement, Persimmon, a key player in the house-building industry, highlighted concerns about the potential return of build cost inflation. This issue, which significantly affected the sector in 2022 and 2023, resulted in fixed-price contracts becoming financially unviable and led to hesitant clients retracting their projects. The industry had seen some respite from inflationary pressures this year, yet the forecast suggests a re-emergence is imminent.
The decision by the Chancellor, Rachel Reeves, to raise employers’ national insurance contributions has been pinpointed as a catalyst for impending inflationary trends. Dr David Crosthwaite, a chief economist with the Building Cost Information Service, indicated on the Re:Construction podcast that this increase is likely to fuel inflation. The extent of this impact remains a matter of speculation, but early indications suggest that house-builders like Persimmon are already feeling the pinch.
Persimmon’s trading statement expressed a continued optimism about growth as they head into 2025, but acknowledged the unpredictability of future interest rate modifications and the broader consequences of the recent budget. The company has started noticing initial signs of inflation creeping into price discussions for 2025, particularly in light of new building regulations and the hike in national insurance premiums. In response, Persimmon is actively collaborating with their supply chain to manage these emerging costs, introducing stringent commercial controls as part of their strategy.
The company is committed to counteracting these cost pressures through robust management actions, aiming to sustain their competitive stance despite the economic challenges. By implementing effective cost-control measures and working closely with suppliers, they seek to alleviate the financial burden caused by external economic policies and regulatory amendments.
Persimmon is actively engaging strategies to tackle the anticipated resurgence in build cost inflation.
