Staying above water?

Economic Week In Review | Issue 383 | 12 June 2023

UK construction and property

  • Planning delays | A report by the Institute for Public Policy Research (IPPR) claims that, at the current rate of development, it will take 4,700 years to deliver the necessary on-shore wind capacity. The IPPR argues that the current planning process needs to be reformed for modern developments.
  • Levy system | As the consultation on changes to CIL and Section 106 payments draws to a close, the British Property Federation has called for reform rather than revolution as a new levy will bring new problems, rather than alleviate existing difficulties.
  • General election | The Construction Products Association has produced a wishlist ahead of the 2024 election called Our Priorities for the Next Government. A key demand is for it to be made easier to export British Products and harder to import cheaper ones.
  • Construction PMI | The latest S&P Global/CIPS UK Construction Purchasing Managers’ Index (PMI) increased from 51.1 in April to 51.6 in May, driven by increases in civil engineering and commercial work. The new orders index reached its highest level since April 2022.
  • Skills | The Construction Leadership Council is campaigning for 13 more trades to be added to the shortage occupation list. It says that delivery of key infrastructure projects depends on better availability of construction workers. It suggests including: steel erectors; sheet metal workers; welding trades; architectural and town planning technicians; and business and related associate professionals.
  • Uncertainty | Barbour ABI warned that the current combination of positive and negative trends in planning applications or approvals is making it increasingly difficult to predict the future of the construction industry. Planning applications fell in April (the latest data date) whilst approvals rose in May.

Commodities and currencies

  • Iron ore prices fell after Goldman Sachs’ warning on the property market. The metal is still up on the previous month.
  • Chinese renminbi | Since the start of the year the Chinese currency has been used for an increasing number of international trades, with some commentators talking of a “de-dollarisation”. Whilst it remains a small percentage of international transactions, its share has increased from 2% in 2013 to 7% in 2022.

UK economy

  • Bank holidays in May did not boost retail sales, which fell to their lowest level in six months, according to the latest BRC-KPMG Retail Sales Monitor.
  • Inflation forecast | The Organisation for Economic Co-operation and Development increased its forecast for growth in the UK but warned that inflation will average 6.9% across this year, higher than Germany (6.3%) and the OECD average of 6.6%.
  • Economic forecast | Moody’s issued a warning that tighter financing conditions will cause a small recession in the UK. It anticipates the Bank of England moving the base rate up to 4.75%.
  • Investor confidence | A survey of US companies operating in the UK for BritishAmerican Business showed that, on a scale of 1 to 10, the average confidence rating amongst US companies in the UK economy has fallen from 7.3 in 2022 to 6.5.
  • Housing market | HSBC, the UK’s largest bank, temporarily withdrew mortgage deals between Friday and Monday in order to “stay within operational capacity”. The products were returned on Monday at higher rates. Nationwide also increased the interest rates on its mortgages. Moody’s warned that “persistently high inflation and the recent spike in lending rates will trigger a correction in the UK housing market”. It expects a 10% fall.

Global economy

  • Investment in China | International companies are withdrawing from Chinese tech groups – even profitable ones. Since 2019, China’s 10 largest tech groups have lost $300bn in market value whilst those in the US have grown by $5tn. Poor economic performance and US restrictions on Chinese technology have encouraged the move.
  • China’s recovery | Goldman Sachs expects an “L-shaped” recovery in the Chinese property market, which will drag the economy. It expects a multi-year slowdown.
  • Eurozone recession | Revised data show that GDP fell in the Eurozone by 0.1% in Q1 2023, after falling 0.1% in Q4 2022, which means that it is technically in recession. The fall was led by Ireland, which saw a GDP downgrade of 4.6%. Poland saw the greatest increase at 3.8%.

Environment

  • El Niño | The cyclical weather event is expected to make 2024 the world’s hottest year, pushing it past the 1.5C milestone.
  • HotSat | A new British satellite will be launched today which is designed to map heat loss from buildings.
  • Diesel use | The Construction Leadership Council has published a strategy (Zero Diesel Sitesd Route Map) for reducing diesel use on construction sites by 78% by 2035. There are 300,000 items of non-road mobile machinery being used by the UK construction sector, which consume 2.5M.t of oil annually. In a related piece of news, the Environment Agency has softened its stance on the use of hydrotreated vegetable oil (HVO) as a cleaner alternative, and will support a study by the Sustainability Supply Chain School to understand the risks and benefits of it, having previously planned for it to be banned from its sites at the end of September 2023.

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 7,562.36 -0.59 3.35
FTSE 250 19,091.66 -0.30 -2.96
Nikkei 32,265.17 2.35 15.96
CSI 300 3,836.70 -0.65 -9.49
S&P 500 4,298.86 0.39 10.20
Nasdaq 13,259.14 0.14 16.92
CAC 40 7,213.14 -0.79 16.58
Dax 15,949.84 -0.63 15.90
$ per £ 1.2580 0.91 2.05
€ per £ 74.7900 -1.76 -38.70
Gold £/oz
Brent Oil $/barrel

Weekly Summary

Barbour ABI’s warning that the market is difficult to read because of ongoing delays to planning and fluctuations in data is key to the year ahead. This idea is supported by continued revisions to GDP forecasts that place countries either in growth or recession, often by a small amount.

Therefore, it is interesting to see the Construction Products Association looking ahead to the next General Election to attempt to build in some stability, and the Construction Leadership Council attempting to safeguard large projects by ensuring they have the necessary labour force to move forwards.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst

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