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An interest rate rise is hardly welcome news for the construction sector. With UK inflation touching a four year high of 2.9% in August, the strengthening pound and recent comments from the Bank of England governor both point to a rate rise in November. But the scale of any rises is expected to be modest and the impact on new private construction activity and business confidence should be limited. Private housebuilding is traditionally the sector most exposed to rising interest rates. Yet a rise in rates from 0.25% to 0.5% (the pre-Brexit level) or even 1%, is unlikely to deter large numbers of would-be house-buyers. Purchasers employment prospects (and today unemployment stands at just 4.3%) good mortgage availability and the continuing assistance provided by Help to Buy are likely to be more compelling factors. Yet the latest Glenigan index figures are consistent with a slowing housing market. They show private residential starts fell 3 % in the three months to August and were 14% down on – an albeit strong – performance a year ago. The latest house price survey from Nationwide showed London house prices actually fell by 0.6% in the year to September, the first decline in eight years. But across the rest of the country, the housing market remains relatively stable. Overall, UK house prices rose by 2.0% in the year to September, according to Nationwide, which bodes well for new private housing activity and housebuilding sector share prices are up by 30 per cent so far this year. Whilst the chairmen of Redrow and Berkeley Group may have taken advantage of this to sell some shares recently, their message on underlying trading remains positive. Redrow started its current financial year in July with a record order book of £1.1 billion and recently reported that sales in the first nine weeks were “very encouraging”, up 8% on the strong levels seen this time last year. Meanwhile, the residential development pipeline remains healthy, despite a slight cooling in the second quarter. The latest HBF/Glenignan Housing Pipeline Report shows that the number of private units approved during the second quarter was 13% ahead of the period last year. Overall, the total number of residential units (private and social) approved in the first half was up 22% over the period in 2016. The prospect of gradually rising interest rates may make some private commercial developers hesitate before going ahead with schemes. The latest Glenigan Index shows that non-residential project starts in the quarter to August were 12% down on the same period in 2016, led by falls in office, retail, education and health projects. At this stage, the industrial sector - where project starts were up 11% on the period last year – looks to be more resilient than the office sector, where project starts were down by 6%. Activity in the retail sector may come under pressure as rising interest rates combine with higher oil prices to add to the squeeze on disposable household incomes (which shrank by 1.1% in real terms in the year to June). Yet the mixed outlook for consumer spending is not deterring some of the largest players in the sector from investing. British Land is progressing a new £300 million leisure hall at its huge Meadownhall complex in Sheffield, which it received planning permission for in September. Having recently completed a £60 million refurb of its existing centre, British Land has been encouraged by the renewal of tenancies with all 61 of its retailers at Meadowhall whose leases were due to expire. Eight have also signed up for increased space.

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