What Donald Did Next…
What does the US tariff furore mean for UK construction and the housebuilding supply chain?
Of course, our local, regional and national housebuilders aren’t exporting to the States, but with the scale of stock market falls continuing today in the UK and worldwide in response to the latest rounds of tariffs, it would be unreasonable not to have concerns about the likelihood of an economic slowdown. This may be characterised by higher inflation, higher risk and a slowdown in investment.
However, the main challenge here is further uncertainty around costs of materials…. Construction is built on confidence, rarely is it built on science.
The supply chain is already fragile, strained, battered, and broken under the seemingly constant onslaught of ‘exceptional’ factors since the start of 2020 – we don’t need to list the ways! Cashflows are stretched and for some this may now be pushed to breaking point.
Further import issues will cause price rises, housing stock isn’t moving quickly, build programmes aren’t moving any more quickly quicker since the Truss debacle. Timber (unaffected by these) is rising and whilst it has reluctantly been accepted by housebuilders it isn’t ideal. Fixed costs are, ideally, fixed.
Housing markets won’t shift without impetus and that either means a stimulus (and there ain’t no money in the public purse pot), relaxed borrowing rules (and there seems to be a reluctance, certainly by the FCA, for fear of irresponsible lending), or lower interest rates (of course this is independent but primarily governed by the government’s own fiscal rules…)
Meanwhile, few of the underlying issues which have slowed down the housing market have been resolved:
- The knock-on effects will almost certainly hit consumer confidence further – it was already 40 points lower than 6 months ago (source British Retail Consortium), not good news for anyone with houses to sell.
- The nil-rate stamp duty threshold is back to £125k, also dropping to £300k for first time buyers.
- 80% of Council planning departments are still operating below capacity. (Source HBF)
- 28% of SME builders report difficulties recruiting general on-site trades (Source CPA)
There is a possibility that new tariffs will cause an upward trend in inflation but you can argue that it isn’t under our control, so to stimulate growth a higher rate of inflation may well be tolerated (again within fiscal policy) and see the way to a reduction of interest rates for borrowing. Indeed, the press report today a reduction in 2- and 5-year swap rates, perhaps a precursor to a bit of a mortgage price war…
So there is almost a crazy argument that tariffs might lead to a potential, unintended, stimulus. It does rather depend on internal fiscal rules vs May local election feedback…
Politics, philosophy and economics.. you can’t have one without the other two….
In uncertain times we’; all be watching ‘what Donald did next’ – as well as how the markets and our own politicians respond!
James Scott
MD
