In August the Bank of England, partly to help mitigate impact to the economy after the Brexit vote, decided to cut interest rates from 0.5% to 0.25%. Although it only marks a 0.25% change, the decision to slash the rate, which had remained fixed since 2009, is historic. The move was celebrated by some in the construction industry, who argued lowering interest rates will aid the housebuilding and construction industries.
Later in August more figures revealed that unemployment was at it’s the lowest for more than a decade – unexpected after June’s referendum. Those in the industry suggested that, while interest rates and unemployment are both at an all-time low, now is the time to invest in property – especially first time buyers struggling to get a foot on the ladder. With renewed confidence among potential home-owners, many are expecting to see a boost to the economy, and in particular the housebuilding industry.
But others within the sector, including the National Federation of Builders (NFB) were unhappy with the Bank of England’s decision. The construction sector has a notoriously bad payment record – currently construction SMEs across the UK are collectively owed more than £30bn in unpaid invoices. The Late Payment of Commercial Debts Regulations allows companies owed payments to charge 8% interest plus the Bank of England’s base rate – with the interest rate cut, subcontractors will be paid even less, which some argue will have knock-on effects on industry’s skill shortage and housing crisis. Possible moves now by some banks to charge businesses for holding cash are very likely to be unpopular.
Post-referendum, greater certainty is what is needed to encourage housebuilders, protect jobs and begin to reverse the UK’s housing shortfall. At this early stage, it is still unclear whether the Bank of England’s move will help or hinder this much-needed progress.