Issue 266 8 February 2021 - Turner & Townsend alinea

Economic Week In Review | Issue 266 8 February 2021

Property and construction news

Construction PMI fell to 49.2 in January, from 54.6 a month earlier. It signifies the first contraction in seven months. Companies cited knock-on effects from the lockdown affecting other sectors and concerns over the UK’s economic future. The survey also found reports of a “severe” fall in supplies due to transport shortages and delays.
Housing | The stamp duty holiday comes to an end at the end of March and the average UK house price fell 0.3% between December and January, according to Nationwide.
Reverse charge VAT | The industry is urging the Chancellor not to introduce changes to VAT in the Spring Budget. The reverse charge means that companies along the supply chain will no longer benefit from the cashflow due to the timing of VAT receipts and payments. With squeezed cashflow, there could be upward pressure on prices.
Self employment | In a speech at the Westminster Business Forum, the Department for Business, Energy, and Industrial Strategy deputy director of construction, Fergus Harradence, said that a key objective for the next few years was to encourage more direct employment in the construction industry. He hopes that changes such as IR35, as well as the Construction Playbook can increase confidence in the pipeline to encourage direct employment and training in the industry. The encouragement has been backed by the CLC.

Materials, stocks, and currencies

Metal prices | Supply constraints could push up the price of aluminium and steel products according to Alumasc, warning of price inflation of 4-5% this year, but that this could be short-lived as supply increases as the virus slows down.

UK news

Energy price cap | Regulators have increased the price cap for consumers by nearly 10%, adding to household finance pressures. Wholesale prices fell last year but have since recovered. According to Citizens Advice, 7 million households are concerned about bills.
Shipping activity | The number of vessels visiting the UK has increased weekly but remains lower than the same period a year ago.
Freeports | The Port of Felixstowe and Harwich International is to become one of ten freeport facilities in the UK, allowing them to import and re-export goods outside normal (new) tax and customs rules.
Immigration uncertainty | There are concerns that the UK is “flying blind” about the impact of the new migration system as vast amounts of data collection were suspended during the pandemic, leading to “enormous uncertainty” overestimates of the labour force, according to the Migration Observatory at Oxford University.

Bank of England - Economic prospects

The UK is expected to “recover rapidly” in 2021, but this is dependant upon a successful vaccination program that enables a “material recovery in household spending”.
GDP in Q1 2021 is expected to fall 4.2% because of the new lockdown. In its previous November report, the Bank had forecast a growing economy.
Unemployment is forecast to increase to 7.8% as the furlough scheme ends.
The outlook is “extremely uncertain”.
Rates were held at the record low of 0.1% but high street banks were told to prepare for the possibility of negative interest rates but this does not mean that they are a future prospect, indeed the panel voted unanimously to maintain the rate.
The Bank is keeping an eye on shipping costs with a view on how it could affect inflation in the coming months.

Global news

US stimulus | A stimulus package worth $1.9tn has passed through the US Senate after Vice President Kamala Harris cast a tie-breaking vote.
China’s boom | Some factories in China are using bonuses to encourage staff to work throughout the usual New Year holiday as the country’s exports increase. Economists have increased expectations for China’s exports and some factories have reported foreign orders have increased by 20% in the year.

Tender Price Index

Published every six months, our Tender Price Index is an analysis of inflation price deviation in construction prices. Click on the link above to view our most recent Index.

Friday to Friday

	Price / Index	Week % change	Annual % change
FTSE 100	6,489.33	1.28	-13.09
FTSE 250	21,066.87	4.14	-2.01
Nikkei	28,779.19	4.03	20.78
CSI 300	5,483.41	2.46	40.60
S&P 500	3,886.83	4.65	16.80
Nasdaq	13,856.30	6.01	45.54
CAC 40	5,659.26	4.82	-6.14
Dax	14,056.72	4.64	4.02
$ per £	1.3714	-0.05	6.29
€ per £	1.1395	0.80	-3.30
Gold £/oz	1,321.11	-1.98	8.38
Brent Oil $/barrel	59.34	6.19	8.94

Weekly Summary

The news this week shows that we are not out of the woods yet and that many uncertainties remain over how the next year will play out, in both the continued response to Covid, and the new Brexit rules. Both of these are disrupting supply chains but currently to an unknown degree as trade is suppressed.

As the new year lockdown was not factored into many forecasts, the Bank of England’s fresh forecast will be welcomed if only for some guidance on how the new measures have affected the economy. It is promising to see that a rapid recovery is in sight, but as ever this is conditional on a chain of events boosting household spending – there are significant concerns over what happens when government support is removed.

Calls for construction to support more direct labour should be welcomed. Schemes such as the Government’s Construction Playbook should go some way to enabling this, ensuring a steady and predictable pipeline of work, but we need to ensure that these projects are properly committed and funded.

To look out for

There are some important changes coming down the road for construction, especially the reverse charge VAT and IR35 changes, and with the current challenged market, all eyes will be on the Chancellor’s Budget at the beginning of March to see if any respite is given.