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01Oct92 UK: CONTRACTORS TO ABSORB COSTS OF £400M A YEAR ON IMPORTED MATERIALS AFTER DEVALUATION OF POUND.

Contractors will have to absorb extra costs of at least £400 million a year on imported materials after the devaluation of the pound, according to cost consultant E C Harris.The consultant warns that the recession means contractors on fixed price schemes will have to absorb the increase costs, while firms bidding for new work will be unable to increase their tender prices.The pound is currently trading at about 10 per cent below its floor in the exchange rate mechanism, meaning that the annual bill for imports of construction materials will rise £400 million above its current level of £4,030 million.This would add 1.25 per cent to contractors' costs, while a fall of another 5 percentage points in the pound's value would mean a 2 per cent increase in costs.E C Harris said the 1 per cent cut in interest rates should help cashflow and reduce debt over-hang in construction, but improved confidence will take some time to work through.