RICS warns on cost of weak pound
The Royal Institution of Chartered Surveyors (RICS) is warning that the falling value of the pound against the US dollar and the euro will lead to higher costs for UK construction.
Although house-builder Bellway said earlier this week that there would be no significant impact in house prices because of the weakness of the pound, RICS is taking a slightly different view.
The Office for National Statistics estimates that the value of imported construction materials represents 10% of construction output, RICS points out. Sterling has lost 15% against the euro and 18% against the dollar since the EU referendum in June. “If this feeds directly through to materials prices it would suggest that materials prices generally will rise around 3% and overall construction costs by more than 1%,” RICS says.
Bellway is likely to be right and that 1% rise in construction might mean no significant price rise for home buyers, but it all helps to erode contractors’ wafer-thin margins.
However, RICS also says that there are several factors that may soften this impact. Buyers may switch to UK manufacturers; both overseas suppliers and UK importers may absorb some of the increases to maintain market share; and stocks already held in the UK supply chain should not be affected.
However, there are also significant negative impacts. All companies who report in euros and dollars will see the value of their UK sales significantly reduced, which may increase the pressures to push up their sterling prices.
Furthermore, the rising cost on imported raw materials used by UK manufacturers, such as plastic and metals, will put upward pressure on their prices.
The exchange rates may also have an effect on labour costs, as working in the UK becomes less attractive to overseas workers who send some of their earnings to their home countries.
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This article was published on 20 Oct 2016 (last updated on 20 Oct 2016).