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Economic Week In Review | Issue 397 | 18 September 2023

UK construction and property

  • Pollution reforms | Plans to relax regulations around water pollution to enable more housebuilding have been blocked by the House of Lords, which voted against the change by 203 to 156.
  • HS2 | The Prime Minister and the Chancellor met last week to discuss the increasing cost of HS2 and its delays. A spokesperson said the government is “committed to HS2, to the project” but confirmed that a further “rephasing” was being discussed. The government refused to comment on the future of the line between Birmingham and Manchester, after photos of documents outlining a “savings table” appeared in the press which detailed each part of the scheme north of Birmingham.
  • Sustainability index | The Instant Group has launched a sustainability index that will validate data for flexible workspace providers, and help operators and occupiers track sustainability initiatives. It comes after Incendium Consulting (part of The Instant Group) found that traditionally leased office space created 158% more emissions than flexible office space.
  • Loan defaults | Analysis from accountancy firm Price Bailey, shows that 1,084 construction firms have defaulted on Covid loans, and the default rate in the construction industry is higher than in other sectors.
  • S106 payments | The Home Builders Federation has claimed that councils are holding on to £2.8bn of unspent S106 payments.
  • Pay | A survey by Property Week has found that executive pay packages have fallen, with those in the housebuilding sector seeing the greatest falls.
  • Construction output | All work fell slightly (by 0.5%) in July, and new work remained fairly flat, showing a 0.1% increase. New private commercial output grew by 4.3% but remains almost 25% lower than its pre-Covid level.
  • Building safety | From next month, the Building Safety Regulator will become the only Building Control body for High Risk Buildings (HRB) and will be responsible for issuing Building Control approval for the detailed design of an HRB.
  • Energy | An initiative led by Bam has secured a grant of close to £5 million from the Department for Energy Security & Net Zero to adapt and develop dual-fuel technology and accelerate the development of hydrogen-powered generators for construction.

Materials and commodities

  • Oil | Brent oil prices have increased 25% since June, reaching a 10-month high. The increase, combined with output cuts from Opec+, has caused concerns that inflation could be pushed upwards.
  • Shipping | The Smithsonian Tropical Research Institute has warned that the Panama Canal is currently experiencing extreme drought and is at its lowest ever level, caused by the El Niño weather pattern. As of mid-August, the Panama Canal Authority has restricted the maximum number of vessels authorised to pass per day to 32. In early September, there were 127 ships waiting to pass through the canal. Upcoming large retail events such as Halloween, Thanksgiving, and Christmas could worsen the impact.

UK economy

  • GDP fell by 0.5% in July, driven by heavy rain. The figure was worse than expected and continues the recent run of weak economic data. Industrial action in the services sector also contributed to the decline.
  • Cash payments | The number of transactions made in cash has increased for the first time in a decade. The research was compiled by UK Finance and suggests that consumers find it easier to manage their money using cash. However, the number of payments made in cash are still substantially lower than they were 10 years ago. There has also been an increase in the number of transactions made on credit cards in the last two years.
  • Housing | UK housing rents increased 12% in the year to August, the fastest since estate agent Hamptons began its index in 2014. Meanwhile, the number of sellers cutting asking prices has reached the highest level in a decade.
  • Manufacturing | Make UK has lowered its forecast for this year, predicting output to fall by 0.5%. It also warned that firms surveyed said that incentives offered elsewhere (such as the US Inflation Reduction Act) make it harder to justify investing in the UK.

Global economy

  • US economy | Headline CPI in the US increased to 3.7%, from 3.2% in the previous month, driven by higher oil prices. The annual core rate of inflation, which removes volatile items such as fuel, fell by 0.4% to 4.3%.
  • Largest listing | Chip designer Arm Holdings has priced its initial public offering at $4.87bn, which would make it the largest listing this year.
  • Return to the office | Research from Bloomberg, using data from Jones Lang LaSalle shows that the US lags Europe and Asia in return-to-office rates. Less than 50% of workers have returned to US offices, whilst the figure is above 75% in Europe and Asia.
  • Interest rates | The European Central Bank increased interest rates to 4%, its highest ever level. The Federal Reserve will meet later this week.

Environment

  • Carbon capture | The government has granted licenses for carbon storage to oil companies. The move will enable up to 10% of the UK’s carbon emissions to be stored under the seabed in old oil and gas fields.

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 7,711.38 3.12 6.56
FTSE 250 18,789.77 1.77 -0.04
Nikkei 33,533.09 2.84 21.64
CSI 300 3,708.78 -0.83 -5.70
S&P 500 4,450.32 -0.16 14.90
Nasdaq 13,708.33 -0.39 19.74
CAC 40 7,378.82 1.91 21.42
Dax 15,893.53 0.94 24.74
$ per £ 1.2389 -0.67 8.57
€ per £ 1.1609 -0.34 1.81
Gold £/oz 1,553.70 0.94 5.92
Brent Oil $/barrel 93.93 3.62 2.82

Weekly Summary

Data released this week showed a fairly gloomy picture, with interest rates increasing around the world and continuing price pressures, coupled with an underperforming UK economy. However, the starkest warning may be the level of defaults on Covid support loans in the construction industry and what this means for market capacity in the coming quarters.

Yet, the data for output is still moving within a narrow band, driven by external influences. The monthly increase in new commercial work will be welcomed, despite the sector still being substantially lower than at the beginning of 2020.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst

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