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Barratt battles rise in build costs amid soaring inflation

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Barratt Developments has revealed it is facing a rise in build costs of up to 10% as soaring energy prices and inflation take their toll.

Britain’s biggest housebuilder said build cost increases have escalated to between 9% and 10% in recent months, up from an average of around 6% over the year to June 30.

The group said the surge reflects “the impacts of escalating energy costs and fuel cost inflation in relation to transportation”.

It recently announced a £1,000 bonus for 6,000 staff below senior management level as it looks to help workers with the cost-of-living crisis.

The payment will be spread over six months, with the first being made in July.

It comes on top of a move announced earlier this year to bring forward a 5% pay rise from July to April 1 to help staff with soaring costs.

Despite the inflation pressures, the group said full-year underlying profits for the year to June 30 will be slightly better than expected as its house completions bounced back to levels seen before the coronavirus pandemic struck.

The group now expects pre-tax profits of between £1.05 billion and £1.06 billion for the year to June 30, which is slightly ahead of forecasts for £1.048 billion and up from £919.7 million posted in 2020-21.

Home completions returned to pre-pandemic levels, with 17,908 notched up over the year against 17,243 in 2020-21.

Average private selling prices rose to £341,000 from £325,500 the previous year and the group said it saw annual house price inflation of around 8% on private reservations.

But it acknowledged clouds on the horizon for the year ahead.

“Looking forward, we recognise that significant macroeconomic uncertainties remain, most notably around rising inflation and interest rates and their consequent impacts on UK economic growth, employment, as well as consumer confidence and spending,” it said.

It still expects to grow house sales by between 3% and 5% in the year to next June, assuming no major supply chain disruption or worsening of market conditions.

Chief executive David Thomas said: “While there are clearly macroeconomic uncertainties ahead, the housing market remains robust, our forward order book is strong and we have the resilience and flexibility to react to changes in the operating environment.”

Danni Hewson, financial analyst at AJ Bell, said: “Build cost inflation of 6% in the year just gone is burdensome enough but a potential double digit increase in the current financial year would really challenge Barratt’s ability to protect margins.

“House prices may have risen rapidly enough to cover these higher costs so far but Barratt, like its peers, is running just to stand still in terms of profitability and there is a significant risk that raw material and labour costs continue to grow.”

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