Any sudden hike in interest rates by the Bank of England to counter housing inflation could damage the current “stable” construction market, according to Galliford chief executive George Marsh.

Speaking at the group’s year-end results launch, Marsh said: “It is of some concern that government may use the blunt instrument of interest rate rises to counter the strength of the housing market in the South-east. It would be a great pity because it would dampen down the rest of the market.”

Marsh predicted that the UK construction market will grow at a steady 1-2% a year in real terms for the next few years. “This is the first time we can plan for a reasonably stable market, rather than the boom and bust we have seen in the last few cycles,” he said.

The company lifted profit before tax by 19% to £4.5m, on turnover up 23% to £226m, for the year to 30 June 1999. Private housing turnover was up from £32m to £42m, but operating profit rose only 2% to £4.75m because margins were down from 14.4% to 11.4%. Marsh put the drop in margins down to planning delays on some sites in the East Midlands, even though average selling price was up 20% to £86 400 and completions were up 12% to 549.

He predicted that 15% growth in average selling prices by the next year end – 5% from inflation and 10% from a higher-priced housing mix.

The construction arm lifted operating profit 48% to £1.8m on turnover up 22% to £184m. Marsh forecast 15% growth in turnover for the coming year and 75% growth over the next four years.