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Supply chains

UK construction companies are bracing themselves for another severe period of cost inflation and supply chain disruption as a result of the war in Ukraine.

The overall rate of industry price inflation to its fastest rate for seven months during April, according to the latest S&P Global / CIPS UK Construction Purchasing Managers Index. Suppliers are struggling to keep up with demand for products and materials and 45% of respondents are now reporting longer lead times.

The pandemic wreaked havoc on construction supply chains and developers were relieved that the early weeks of 2022 of improvement. Spikes in energy and commodity prices as a result of Russia's invasion of Ukraine brought an end to that optimism, but forward contracts, advanced purchasing and hedging have meant that the resulting price rises are to feed through, according to the Construction Products Association's Noble Francis.

Materials prices in March 2022 were already 24.5% higher than a year ago according to official figures. , cost inflation varies considerably by product and steel products such as concrete reinforcing bars and fabricated structural steel are the worst affected - 13% of the UK's imports of steel construction materials come from Russia/Ukraine.

Mortgages

Bank margins - effectively the spread between the rate you pay as a homeowner and the Bank of England's base rate - tracked well above long term norms through the pandemic. That gave lenders some headroom to absorb interest rate hikes without passing the cost on to borrowers.

Mortgage rates have tracked upwards in recent weeks but lenders have absorbed some of the cost in the form of narrowed margins - see Flora Harley's piece from last week. Bank of England chief economist Huw Pill took a tour of the television studios on Friday following the Bank of England's decision to raise the base rate to 1%. He that the speed of the "pass through rate" has been a little slower than in the past but "that pass-through will take place, and will have some moderating effects on the housing market.鈥�

Lenders are in some cases repricing their product ranges on a weekly basis and we may see an uptick in the size and scope of that repricing during the summer months.

I mentioned on Friday that the Bank points to its Market Participants Survey for a guide on the future path of the base rate. The median response to published on Friday has the rate peaking at 2% in February 2023.

Gentle densification

The Levelling Up and Regeneration Bill to be published alongside the Queen's Speech tomorrow will include a pledge to consult local residents on design codes for housing, according to a with Michael Gove.

"We will make sure that through local democratic ballots, sometimes street by street, we can have the enhancement that we need to see the additional homes being built. In a way that leads to what the experts call 'gentle densification', but what you or I would just recognise as simply building in tune with what's already there," he tells the paper.

The Bill will also include a promise to reassess how housing targets are enforced, particularly in areas constrained by the green belt. Councils are expected to challenge targets, provided they can produce evidence.

In other news..

Capco, Shaftesbury in talks on reported $4 billion merger (), star architect Foster to help plan Ukraine reconstruction (), Chapel Down puts fizz into English wine (), and finally, China stimulus fails to ignite housing sales over key holiday ().