The other "B" word

Economic Week In Review | Issue 385| 26 June 2023

UK construction and property

  • HS2 delays | Internal Government estimates show that the delays to part of the HS2 line will add £366 million to the project bill. Overall, the line has already more than doubled its original price tag of £33bn which was set ten years ago. The rail minister Huw Merriman that the current Euston plans are unaffordable at their current costs and could look to partner with the private sector.
  • Roads | The plans to link the M6 with south Lancaster have been paused as costs have increased. The original plans were granted £140m from the Housing Infrastructure Fund.
  • Infrastructure levy | Construction lobby groups have joined housing providers, charities, planners, and developers to call on the Government to scrap plans for a new infrastructure levy and to reform developer contributions instead.
  • Planning figures | Barbour ABI has reported that the number of planning applications in residential, offices, and industrial sectors have fallen. 2,242 projects worth a total of £6.1bn were approved in May 2023, 31% lower than a year ago, and the second successive “very low” month.
  • Empty offices | The City of London is planning to fast-track planning applications to convert empty, older offices into new uses such as hotels and galleries (but notably, not housing) as it worries that 20% of the stock in the area could become stranded assets.
  • Net zero plans | The Public Accounts Committee is concerned about the lack of transparency over the cost of expanding nuclear, wind, and solar power to meet net zero plans. It called on the Government to pull its numerous decarbonisation plans into one coherent strategy by autumn this year.
  • Modular framework | Firms have been named for a £1.2bn framework to build thousands of homes across the UK via a modular approach and delivered under a not-for-profit public sector provider, London Housing Consortium Procurement Group’s new Modern Methods of Construction of New Homes (NH3) Framework. The framework will run until May 2027.

Materials and energy

  • Sales at builders’ merchants have fallen 9% by value in April when compared to April 2022. Volume was 20.2% lower whilst prices increased by 14%. There was some variation between different sectors with renewables and water saving up 55.4% and decorating +8.3% whilst timber and joinery fell 20.6% and landscaping by 23.3%.
  • Coal mines | The Government is planning to remove a ban on opening new coal mines in the UK which is part of a Bill going through Parliament. It also plans to remove changes that would have allowed small community energy projects to sell directly to local homes.
  • Gas prices in Europe increased after the rebellion in Russia stoked fears of supply interruptions. Volatility in pricing rose to its highest level since the beginning of the war in Ukraine.

UK economy

  • Government debt rose above 100% for the first time since 1961 (except for a brief spike during the Covid-19 pandemic which was later revised down).
  • Disposable income | The Institute for Fiscal Studies estimates that 1.4 million mortgage holders in the UK will face a 20% hit to their level of disposable income due to rate increases. It will impact people in the 30-39 age bracket the most.
  • Interest rates | The Bank of England voted to increase the base rate by 0.5% to 5%. The market had expected a lower increase of 0.25%.
  • Recession | JP Morgan Asset Management’s chief market strategist EMEA (Karen Ward) suggested that the Bank of England needs to “create a recession” in order to curb inflation. She is also a member of Chancellor Jeremy Hunt’s advisory economic council.
  • Competitiveness | Britain has dropped six places in the global economic competitiveness rankings from the International Institute for Management Developments.
  • Underinvestment | The Institute for Public Policy Research warned that years of underinvestment are restraining growth and greening plans in the UK.
  • Spending | The Bank of International Settlements has suggested that economies, such as the UK, need to increase taxes to cut public spending in order to reduce business and consumer demand, a critical part in taming inflation.
  • UK rents have increased at their fastest pace in seven years as they increased by 5.1% in May according to the ONS. The dataset only began in January 2016 and the previous fastest pace was recorded in April 2016 at 4.8%.
  • Mortgage support | Mortgage lenders have agreed a 12-month grace period on repossessions after the Bank of England moved the base rate to 5%. Other measures agreed in a meeting with the Chancellor included ensuring that consumers’ credit scores will not be affected by discussions with mortgage lenders.
  • Services sector | The flash UK PMI showed a slowing services sector in the UK. Growth in the sector eased to 53.7, still above the 50.0 marker for no change.
  • Retail sales grew 0.3% between April and May as warmer weather encouraged spending on summer clothes and goods, as did the extra bank holiday. Sales volumes are still significantly below volumes seen in the second half of 2021.

Global economy

  • Turkey | The new governor of Turkey’s central bank increased the base rate from 8.5% to 15%.
  • New York apartments | The Rent Guidelines Board voted to increase rents by 3% for one-year leases in rent-stabilised apartments, and more complex calculations for two-year agreements. The Board approved a similar increase last year. According to research, more than half of rent-stabilised households are “rent-burdened” which means they spend more than 30% of their income on rent.
  • German house prices fell at a record rate of 6.8% in the first quarter of this year, impacted by higher borrowing costs and weak economic growth.

Environment

  • Paris summit | Almost 40 heads of state will gather in Paris to produce a two-year plan for the reform of climate finance. The plans will cover taxation of global shipping and other large sources of greenhouse gas emissions. At the summit heads of state will be asked to present concrete proposals on a loss and damage fund which will be directed at the rescue and reconstitution of countries affected by climate change.
  • Bees | US honeybees saw their second most deadly season last year with 50% of colonies dying. Bees are a crucial component of the global food supply chain and the loss of pollinators is estimated to be the cause of 1% of global deaths.
  • Sea temperatures are as much as 3°C to 4°C higher than the average for this time of year according to the European Space Agency and the Met Office.

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 7,461.87 -2.37 3.51
FTSE 250 18,062.33 -5.09 -5.55
Nikkei 32,781.54 -2.74 21.99
CSI 300 3,864.03 -2.51 -12.08
S&P 500 4,348.33 -1.39 11.16
Nasdaq 13.52 -1.44 16.24
CAC 40 7,163.42 -3.05 17.95
Dax 15,829.94 -3.23 20.67
$ per £ 1.2699 -0.90 3.48
€ per £ 1.1664 -0.55 0.16
Gold £/oz 1,510.86 -1.04 1.49
Brent Oil $/barrel 73.85 -3.60 -34.72

Weekly Summary

Seven years on from the Brexit vote, inactivity (or th estop-start nature of leadership) on several issues is now causing immediate issues which need to be addressed at a time when it seems we are least equipped to deal with the problems. There also seems to be little agreement on how to handle some of these problems too, highlighted by different bodies advocating either increasing or reducing public spending.

This confusion seems to surround multiple issues now, exemplified by the Bank of England increasing rates to reduce demand in the market, which led banks to work to mitigate some of these impacts.

Recent inclusions in the “environment” section of this report demonstrate the need for urgency in remediating some of our impacts on the environment, and that the need extends beyond plans for net zero carbon, taking into consideration of our waste production, agricultural measures, regulations, space for nature, and resource use.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst

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