Fixing the crises

Economic Week In Review | Issue 370 | 13 March 2023

UK construction and property

  • Demolition | New planning guidance in the City of London encourages developers to carry out a detailed review of the carbon impact of a development as part of the Pre-App process. The guidance pushes for detailed consideration of retaining existing structures instead of demolition. A similar approach is being factored into the Levelling Up and Regeneration Bill.
  • MEES deadline | A study by Irwin Mitchell reveals that only a third of office occupiers know how energy efficient their buildings are, and 21% are concerned that the cost of upgrading to a MEES compliant level will be passed on through the service charge. However, 84% of respondents would pay higher rent for an environmentally-friendly space.
  • Shortage Occupations | This week the Migration Advisory Committee will publish its report recommending that bricklayers, roofers, carpenters, plasterers and people working in the construction trade generally should be among those added to the Shortage Occupation List. This brings a lower salary threshold and reduced visa fees, but still requires an employer to sponsor the application.
  • Cold homes | According to the Building Research Establishment (BRE), the NHS spends £540m a year treating people from “excessively cold homes” (EPC F or G), of which there are 500,000 owner-occupied, 200,000 privately rented, and 20,000 social housing.
  • Infrastructure | Parts of HS2 and the Lower Thames Crossing have been delayed, with high inflation to blame. Transport Secretary Mark Harper stated, “Refocusing our efforts will allow us to double down on delivering the rest of our capital programme”. Over £800m has already been spent planning the Lower Thames Crossing, and it is expected to be delayed (or “rephased”) by two years.
  • Investment | According to BNP, £41bn of international investment is targetting central London offices and retail. Investors are looking for ultra-prime ESG assets for long-term buyers and tenants. Deals in Q1 2023 are likely to show a 182% increase from Q4 2022 and at a more normal level.
  • Plant sales in January were 10% higher by unit when compared to a year earlier.
  • Carbon measuring | The RICS is to review how whole-life carbon emissions should be calculated in the built environment sector. The new edition of the RICS methodology will cover all built assets and infrastructure.

Materials

  • Energy costs | The recent cold snap means that the National Grid paid some of the highest prices for gas-generated energy. Meanwhile, EDF has announced plans to extend the lifespan of two of the UK’s five nuclear plants. Heysham 1 and Hartlepool were due to close in March 2024, but will remain operational for a further two years.
  • Timber imports fell 20% last year, after a record 2021, according to trade body Timber Development UK.
  • Rebar anti-dumping | The British Association of Reinforcement has welcomed the extension of measures to limit the dumping of Chinese rebar.

UK economy

  • Economic growth | The economy grew 0.3% between December and January, more than the 0.1% that was expected by economists. Services were a key driver, growing 0.5%. Overall output is still 0.2% smaller than January 2020.
  • Highly skilled migration | The OECD has found that the UK has risen up the “talent attractiveness” list faster than any other country since 2019 and is in the top ten, ahead of the US. The number of migrants with tertiary-level education has doubled since 2010.
  • Business investment recovered to pre-pandemic levels at the end of 2022, but in its quarterly forecast, the British Chambers of Commerce expects it to fall slightly as higher corporation tax, changes to business rates, and higher interest rates all take their toll.
  • Housing market | Housebuilder shares have fallen in recent weeks as they announce construction output. While prices are expected to fall in the near term, analysts do not expect them to crash, instead, the outlook is “relatively benign”.

Global economy

  • European prime office | Rental growth increased by 6.2% between Q4 2021 and Q4 2022, its strongest year since mid-2008, fuelled by demand for “best-in-class, grade A office space” according to Cushman and Wakefield.
  • Silicon Valley Bank | Global institutions are monitoring the collapse of SVB, and HSBC has bought SVB UK for £1, stopping it from moving into insolvency. In 2018, the US signed the Economic Growth, Regulatory Relief, and Consumer Protection Act into law, releasing mid-sized firms from some of the strictest post-crisis regulations and cutting compliance costs. SVB had a $73bn loan book, of which around 20% was venture debt. The ringfenced SVBUK had a total balance sheet of £8.8bn.

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 7,748.35 -2.50 8.28
FTSE 250 19,357.46 -2.85 -4.20
Nikkei 23,143.97 0.78 11.85
CSI 300 3,967.14 -3.96 -7.88
S&P 500 3,861.59 -4.55 -8.15
Nasdaq 11,138.89 -4.71 -13.27
CAC 40 7,220.67 -1.73 15.34
Dax 15,427.97 -0.97 13.21
$ per £ 1.2042 0.39 -7.81
€ per £ 1.1299 0.01 -5.37
Gold £/oz 1,552.53 0.74 1.80
Brent Oil $/barrel 82.78 -3.55 -26.53

Weekly Summary

The skills and energy crises are emerging as key issues in the economy’s route out of high inflation, and back to more “normal” growth. It’s positive to see that the post-Brexit visa landscape will be loosened to better support the construction industry, but we cannot lose sight of the fact that it still requires employer sponsorship and a higher administrative burden. We will be closely monitoring this week’s Budget for relevant announcements for inflation and skills that could give confidence in the pipeline.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst

Related reviews

Website &AGENCY