Are you getting the whole picture?

Economic Week In Review | Issue 393 | 21 August 2023

UK construction and property

  • Safety checks | Inspections of construction sites by the Health & Safety Executive will increase across Great Britain and will focus on the handling of materials. The checks will focus on ensuring employers and workers understand the risks, plan their work, and use appropriate control measures to protect workers.
  • Construction starts | Analysis from Glenigan shows that construction starts are a third lower than last year. Interest rates, material prices, and labour costs were to blame for weakening investor and consumer confidence. Detailed planning approvals have fallen 26% compared to the previous quarter, but increased 37% by value against the previous year. Major project planning approvals were a bright spot in the report, showing a 167% increase compared to 2022.
  • West End offices | A portfolio of West End offices has been put up for sale by Hong Kong investor Samuel Tak Lee. The £500m sale is expected to reveal the appetite of investors for office and retail assets in London. Savills and JLL will sell 27 of the 200 buildings which make up the Langham Estate. The largest transaction in London in the first half of the year was the £428m sale of Fenwick by Lazari Investments.
  • Artificial intelligence | Landsec is trialling artificial intelligence systems in its headquarters to see if it can help to reduce energy usage, as well as save carbon and money.
  • Second staircase | The Housing Forum has written to Michael Gove asking for urgent talks over the decision to lower the requirement for second staircases to 18 metres, as it claims that it risks “significantly reducing” the supply of housing by increasing costs and uncertainty. It also warned that the lack of further information has caused builders to pause as the department has not confirmed what the “core purpose” of the second staircase will be.

 

Materials and commodities

  • Aluminium | China’s aluminium imports increased by 20% from a year earlier due to low stocks and expectations for stronger demand in autumn.
  • Shipping | The Baltic Dry Index – a proxy for the cost of shipping – has increased recently, driven by demand for smaller vessels which usually carry grain or coal.
  • Gas storage in the EU has reached targets before the November deadline. Analysts have warned that a cold winter could lead to volatile pricing.

UK economy

  • Retail sales volumes fell 1.2% between June and July as wet weather discouraged spending. A poll of economists by Reuters had anticipated a fall of 0.5%. However, the wet weather and Amazon’s Prime Day deals boosted online sales by 2.8%. Overall sales values increased, due to the high rate of inflation.
  • Inflation | Consumer price inflation slowed to 6.8% in July. Energy costs fell, but inflation of core goods and services remained high. The rate of food price inflation remained high at 14.9% despite slowing from 17.3% a month earlier.
  • Energy price cap | Analysts expect bills to increase again in January to an average of £1,979. Ofgem predicted that the energy price cap could fall to £1,823 a year from October next year.
  • Greedflation | Company profits have remained stable in the first quarter of 2023, and lower than the prevailing rate from before the pandemic. This view supports that of the Bank of England that “greedflation” – the process where inflation is driven by companies increasing prices beyond the levels that their price pressures would demand – is not responsible for inflation.
  • House prices saw their fastest August drop since 2018, but remain almost 20% higher than pre-pandemic levels, according to Rightmove.
  • Warehouse space | Data from Savills shows that the cost of renting warehouse space in London has increased by 10% in the year to June 2023. London is now the most expensive city in the world to rent space at $41.68/sqft, much higher than second place Sydney at $27.44/sqft.

 

Global economy

  • World’s largest office | The Pentagon in the US has lost its status as the world’s largest office building after the completion of the 660,000 sqm Surat Diamond Bourse in Gujarat, India.
  • China’s economy | In addition to cutting interest rates last week, authorities in China have increased efforts to protect its financial markets after its stock markets and yuan have declined. Funds have been asked not to sell stocks, and banks will support the yuan. The central bank cut loan rates by less than expected on Monday, leading forecasters to cut expectations for growth in China to 4.7%, which sits below Beijing’s official target of “about 5%”.
  • China’s property market | Concerns are increasing over China’s property market. Two large developers in China are facing severe financial difficulties. Evergrande filed for protection from bankruptcy proceedings and Country Garden faces a risk of default in the coming weeks. Since China introduced a “three red lines” policy which intends to reduce the debt levels in the sector, companies responsible for 40% of Chinese home sales have defaulted on their debt repayments.
  • Household income | Data from the OECD shows that real household income per capita grew by 0.9% in Q1 2023, exceeding real GDP growth per capita of 0.3%. However, amongst G7 nations, the picture was varied. Real household income per capita rose in Italy and the United States while it declined in Canada, France, Germany, and the United Kingdom.
  • BRICS summit | The BRICS group of major emerging economies – Brazil, Russia, India, China and South Africa – will hold its 15th heads of state and government summit in Johannesburg this week. It will discuss economic cooperation, expansion of the bloc, and local currency fundraising and lending.

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 7,262.43 -3.48 3.81
FTSE 250 18,096.60 -3.74 -9.01
Nikkei 31,450.76 -3.15 8.71
CSI 300 3,784.00 -2.58 -8.84
S&P 500 4,369.71 -2.11 3.34
Nasdaq 13,290.78 -2.59 4.61
CAC 40 7,164.11 -2.40 10.29
Dax 15,574.26 -1.63 14.99
$ per £ 1.2739 0.37 7.87
€ per £ 1.1715 1.12 -0.40
Gold £/oz 1,483.62 -1.59 0.47
Brent Oil $/barrel 84.80 -2.32 -12.32

Weekly Summary

Over the last few years, we’ve all become used to looking at the small details and drivers of the construction industry. As several of the metrics continue to oscillate and the market changes, it is important to be aware of the context of the data. Headlines can be particularly exciting but can be misleading without context.

 

 

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst

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