Lords Warns High Interest Rates and Low Confidence Are Pressuring Construction Firms

Construction companies are grappling with a significant decline in market confidence, soaring interest rates, and escalating national insurance costs, as highlighted by builders’ merchant Lords Group following its most pronounced single-day stock drop to date.

In a stark market update released on Thursday, the London-based firm witnessed its shares plummet by 20.61%, reaching a record low of 13 pence. This decline represents a staggering decrease of over 40% since the beginning of the year.

Market Confidence Erodes

Stuart Kilpatrick, the Chief Financial Officer, attributed the stock’s downturn primarily to a pervasive lack of confidence among both the markets and individual investors, leading many to adopt a cautious approach. “People are sitting on their hands a little bit,” he noted, emphasising the need for government intervention to enhance planning processes, restore stability, and alleviate financial burdens on businesses, particularly through reductions in employers’ national insurance contributions.

“The government hasn’t really assisted us with national insurance, which has inflated our expenses and those of the wider employment sector,” Kilpatrick remarked. He also expressed concern over persistent high interest rates and referenced unforeseen geopolitical tensions, such as the situation in Iran, which have compounded economic pressures within the construction industry.

Challenges in the Housing Sector

The construction sector is a vital component of the UK economy, contributing approximately seven per cent to the GDP and providing employment for over two million individuals. However, it is currently facing its most severe cost increases in three decades.

Homebuilder Berkeley raised alarms last month, asserting that urgent government intervention is essential, warning that London may fall short of its housing targets. Crest Nicholson has reported a £35 million loss, attributing this decline to rising interest rates, increased costs, and diminished consumer confidence resulting from the ongoing conflict in Iran.

The industry is also experiencing job cuts, with the S&P Global Purchasing Managers’ Index (PMI) indicating a trend of sustained job shedding. Tim Moore, the economics director at S&P Global Market Intelligence, noted that civil engineering has particularly suffered, recording its weakest performance since the pandemic’s onset.

Ambitious Housing Initiatives and Market Outlook

Prime Minister Andy Burnham has committed to initiating the “largest council housing programme since the post-war era,” although specifics regarding the plan are still lacking. Lords Group reported a revenue of £232 million for the first half of the year, marginally down from £232.8 million in the previous year.

Despite some positive developments, such as a 17.5% increase in revenues from its digital division and an 8% rise in spares revenue, the company indicated that there is little evidence to suggest a substantial market recovery in the latter half of 2026. The board anticipates full-year revenue between £475 million and £495 million, with adjusted pre-tax earnings projected at £17 million to £18 million.

Restructuring for Future Stability

The most significant decline was observed in the repairs, maintenance, and improvement (RMI) sector, alongside building materials, with a 4.9% decrease on a like-for-like basis reported in the first quarter. However, this decline softened to 2.2% in the second quarter.

“There’s just been no improvement this year compared to the second half of last year,” Kilpatrick stated. “Nonetheless, we are doing everything possible to capture market share, drive the business forward, and manage our costs effectively.”

In a strategic move, the firm has restructured its plumbing and heating divisions, a change it anticipates will yield savings of £1.5 million. “We are positioning ourselves as best as we can in anticipation of any market recovery,” Kilpatrick concluded.