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Housebuilders lead gloomy UK economy

Monday, 14 July 2008 12:00 AM

The ongoing impact of the credit crunch has spread beyond the financial sector, with housebuilders now among the worst affected.

According to new analysis from Ernst & Young, the construction sector is now "suffering considerably," with a rash of job losses confirmed last week.

Persimmon confirmed it was to cut over 1,000 posts last week, along with Barratt Developments, Taylor Wimpey, Redrow and Bovis Homes, all of which have slashed their work forces.

This weekend speculation hinted building and plumbing supplies group Wolseley was also on the verge of announcing further cuts.

"Market confidence in the sector has fallen to levels not seen before by even the most experienced operators," said Andrew Wollaston, restructuring partner at Ernst & Young.

"The spate of redundancies announced by house builders in the last week is clearly aimed at executing a strategy of mothballing their businesses and land banks until the market recovers."

Research from Ernst & Young finds the household goods and home construction sector issued the highest proportion of profit warnings by sector in the second quarter of 2008.

This was driven by the troubled home construction sub-sector - where almost 50 per cent of companies issued profit warnings in second quarter 2008 and almost 75 per cent in the last six months.

There are also further gloomy clouds circling the industry.

House prices are falling more than six per cent year-on-year - according to research from Nationwide and Halifax - and mortgage approvals, a key indicator of future prices and demand, are at record lows

"How long the recovery will take, is difficult to call," added a pessimistic Mr Wollaston.

"In the last property downturn of 1989, the average value of UK houses fell for six years to 1995 and then recovered to 1989 values in 1997."

Chris O'Toole

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