Persimmon Warns of Rising Costs, Shares Drop 8% Amid Inflation Fears

08 Nov 2024 CW Team

British homebuilder Persimmon's stock plummeted by 8%, reaching a four-month low of 1,352 pence, after the company raised concerns about increasing costs for 2025. The broader construction sector also saw a decline of 3%, highlighting the widespread impact of inflation fears across the industry.

The cost increases come as rising inflation, spurred by the UK government's October budget, is expected to delay potential interest rate cuts by the Bank of England. Persimmon’s Chief Financial Officer, Andrew Duxbury, revealed that the company anticipates additional expenses, including a £5 million increase from higher national insurance rates and another £10 million impact through the supply chain over the next year.

In her first budget, British finance minister Rachel Reeves raised employer social security contributions by 1.2 percentage points to 15%, adding pressure to business costs. This move is aimed at raising revenue but has drawn criticism from companies worried about economic growth due to higher payroll expenses.

Despite cost concerns, Persimmon reported positive sales figures, with private forward sales since July 1 increasing by 40% to £1.45 billion. The company's net private sales per outlet also saw a 37% year-on-year rise during the second half of 2024.

Barclays analysts noted that the return of cost inflation presents margin risks, with another UK homebuilder, Vistry, also reporting similar concerns last month, cutting its annual profit forecast due to understated costs in one of its divisions.

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