Persistent pressures

Economic Week In Review | Issue 401 | 16 October 2023

UK construction and property

  • Output | All construction output fell 0.5% in August, a second consecutive fall. A 1.0% increase in Repair and Maintenance was offset by a 1.5% fall in new work. Five of the nine sectors fell, with private commercial falling 4.1%.
  • Insolvencies | According to the Insolvency Service, insolvencies in the construction sector rose again after falling the previous month, continuing their volatile trend.
  • Green collusion | The Competition & Markets Authority has published guidance – titled the Green Agreements Guidance – to show businesses how they can collude on environmental policies without breaking the law. Normally, such collusion breaches the Competition Act 1998, but an exemption is made for environmental sustainability policies.
  • Fire safety | The Construction Industry Training Board (CITB) has developed a free online fire safety awareness course in response to the Grenfell Tower fire inquiry. The CITB worked with specialists in the industry to develop the training, which can be found here.
  • Laser bunker | The Central Laser Facility (CLF) on the Harwell Campus in Oxford is preparing to build a bunker for the arrival of the world’s most powerful laser. It will require two seven-metre-tall targeting bunkers with walls and soffits up to two-metres thick.
  • HS2 contracts | Analysis of HS2’s invoices by Tussell, a consultancy that monitors government contracts, shows that the government has already spent £1.25bn on contracts of Phase 2 of the line of which Rishi Sunak recently announced the cancellation.

Materials and commodities

  • Bricks | Forterra is to mothball another factory, cutting production of its Aircrete blocks as the housing market continues to decline. In related news, Brickability has bought a cladding contractor in its continued diversification drive to counter the impacts of the housebuilding slowdown.
  • Gas | Prices for liquified natural gas in Europe reached their highest since March 2023, following speculation that the wider effects of the conflict in Israel would impact energy supplies.
  • Steel | The Romanian steelworks owned by Sanjeev Gupta has been hit with insolvency claims from several suppliers following unpaid invoices. This adds to recent headwinds after the collapse of his main lender, Greensill Capital in 2021. The plant produces pig iron and flat-rolled steel, and underwent a maintenance program between December 2022 and March 2023, only restarting operations when the European market was recovering.

UK economy

  • GDP | Latest figures from the ONS revealed a 0.2% increase in GDP in August, driven by the services sector.
  • House prices have fallen by 13.4% in real terms according to Nationwide’s House Price Index. Savills used the index to suggest that house prices are around the same level as in 2015, after adjusting for inflation. Savills’ analysis also shows that sales of properties valued at £5 million or more are almost 70% higher than the pre-pandemic average.
  • Inflation expectations | Pierre-Olivier Gourinchas – an economist at the IMF – warned that the Bank of England is likely to need to increase interest rates due to persistently high inflation, and the UK could see higher rates for the next five years. The IMF expects CPI to be 3.7% in 2024, exceeding levels in other G7 countries (with Germany being the nearest at 3.5%). Meanwhile, a poll of economists by Refinitiv expects CPI to fall slightly this month from 6.7% to 6.5%.
  • Food price inflation is still concerningly high at 11% in the four weeks to 1st October, despite falling from 12.2% a month earlier.
  • Labour market | Starting salaries in the UK and pay for temporary workers rose at their slowest rate in two and a half years, suggesting that the labour market is beginning to cool.
  • Migration | Analysis from the Migration Observatory at Oxford University and the Centre for Economic Performance at the London School of Economics has suggested that net migration is likely to fall significantly in the coming years, but remain at pre-Brexit levels of about 300,000. Net migration was a record 606,000 in the 12 months to June 2022.
  • Trade | Germany’s finance minister has extended a surprise invitation to the UK to take “new steps” on trade relations with the EU, saying “If you want to intensify your trade relationship with the EU – call us!” He added that “In the daily life of German corporates, there are new obstacles since Brexit… I don’t think [the] United Kingdom is benefiting from Brexit””

Global economy

  • US inflation increased 0.4% in September to 3.7%, boosted by energy prices. The move heightens expectations that the Federal Reserve will keep interest rates high.
  • Eurozone growth | Germany has revised its forecasts for growth down, expecting its economy to shrink by 0.4% due to persistently high inflation and high energy costs.
  • Stock stabilisation | China has suggested a stock market stabilisation fund to boost economic confidence. The fund would invest in domestic equities, with government money being matched by partner funds and institutions. It has been suggested that the fund would need to be at least $137bn to be effective. Data released last week showed that China’s economy is weakening with the producer price index falling 2.5% year-on-year, and CPI has increased just 0.1%.

Environment

  • Renewables | Japan’s Marubeni and partners will invest £10bn into UK clean energy over the next decade. A memorandum of understanding was signed between Marubeni and the UK government and includes a 3.6-gigawatt floating offshore wind farm in Scotland.

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 7,599.60 1.40 10.80
FTSE 250 17,454.22 -1.57 2.47
Nikkei 32,315.99 4.26 19.29
CSI 300 3,663.41 -0.58 -4.66
S&P 500 4,327.78 0.45 20.78
Nasdaq 13,407.23 -0.18 29.90
CAC 40 7,003.53 -0.80 18.07
Dax 15,186.66 -0.28 22.10
$ per £ 1.2136 -0.96 8.26
€ per £ 1.1558 -0.07 0.42
Gold £/oz 1,591.23 6.23 8.19
Brent Oil $/barrel 90.89 7.46 -0.81

Weekly Summary

Insolvencies and output are undoubtedly going to be key topics of focus as we seemingly come out of a period of rapidly escalating price pressures, and several construction sectors see falling demand. Understanding the details behind the headlines will be increasingly important as construction weathers yet another storm, enabling teams to determine what’s relevant and how workstreams will be affected.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst