Into winter...

Economic Week In Review | Issue 404 | 6 November 2023

UK construction and property

  • Workload | The latest UK Construction Monitor from the RICS shows a net balance of -10% of respondents reporting decreased activity this quarter – the worst reading since the pandemic. However, infrastructure and public sectors saw growth. A net balance of +38% of respondents reported that the credit environment is more restrictive and access to finance is limiting activity.
  • Output | The latest S&P Global / CIPS UK Construction PMI increased to 45.6 in October, up from September’s 45.0, but still below the crucial 50.0 marker for “no change” thereby indicating a fall in output. It is the second-lowest reading since May 2020. The three construction sectors faired differently; residential saw a reading of 38.5, civil engineering fell to 43.7, and commercial increased slightly to 49.5. 37% of the panel forecast a rise in business activity during the year ahead, while 19% predicted a decline.
  • Engineering workers voted to strike, turning down a pay rise of 10% in 2024 and 5% in 2025, explaining that pay has fallen more than 20% below inflation. The action will affect oil refineries and Sellafield nuclear power station.
  • Investment | Research by insurance broker Gallagher revealed that two-thirds of institutional real estate investors are reconsidering their position in the UK. It blamed several factors; changing working patterns, the cost of money, and inflation. 37% of the 300 UK institutional real estate investors said that investing in UK cities has become riskier since the pandemic.

Materials and commodities

  • Oil prices | The World Bank expects oil prices to fall to $81 in Q1 2024, after averaging $90 in Q4 2023. However, it warned that prices could reach $150 a barrel if the conflict in the Middle East escalates.
  • Oilfield | UK regulators have approved plans for a new oilfield in the North Sea. Rosebank is an oil and gas project, 80 miles off the coast of Shetland and is expected to produce around 300 million barrels of oil over its lifetime. It is expected that Prime Minister Rishi Sunak will use this week’s King’s speech to announce legislation for an annual system of awarding oil and gas licenses.
  • Mineral products | The Mineral Products Association has warned of “notable declines” in demand for a number of products such as ready-mixed concrete, and sand and gravel. It said that the survey “reveals the extent of the slowdown in housebuilding activity, compounded by continuing delays in key infrastructure projects, particularly in roads, as a result of persisting cost pressures and planning challenges.” However, it also revealed regional pockets of growth in the East of England and the South East.

UK economy

  • Retail | Shop price inflation reached its lowest rate in a year, but prices still increased by 5.2% in October. Food inflation fell to 8.8%, while non-food inflation fell to 3.4%
  • Bank rates | The Bank of England voted 6-3 to keep the Bank Rate at 5.25%, with three members wanting to increase the rate by 0.25%. However, the Bank warned that monetary policy will remain tight “for an extended period of time” and that growth will remain “well below historical averages” over the medium term. It also warned that “the pace of decline in construction output could increase over the winter, given uncertainty about private sector project rates of return and increasing pressure on public sector budgets.”
  • Covid loans | The Government has removed state guarantees from almost £1bn worth of Covid-19 emergency loans. The move pushes the risk of default onto banks. The British Business Bank said that guarantees for 10,786 loans were removed for a variety of reasons such as data corrections, and infringement of scheme rules.

Global economy

  • Shipping | The Panama Canal will reduce the number of crossings by 40% due to a drought in Panama. 3% of global trade moves through the canal, and 40% of North America’s container ships. The Panama Canal Authority stated “This will be the worst El Nino recorded in recent history.”
  • Manufacturing | The latest JPMorgan Global Manufacturing PMI (compiled by S&P Global) showed that global manufacturing fell to 48.8, from 49.2 in September, showing deteriorating conditions for the fourteenth successive month. Europe saw the steepest decline. Global output is currently 1.0% lower than a year ago.
  • European energy stores | Natural gas storage in Europe is close to capacity, as the bloc seeks to stockpile ahead of winter and annual price spikes and increased demand.

Environment

  • Hydrogen | The Netherlands has started work on a 1,200km hydrogen network, at a cost of around €1.5bn. It is expected that the network will be complete in 2030, with the initial loop between Rotterdam and Tweede Maasvlakte industrial park opening in 2025.

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 7,417.73 1.73 1.13
FTSE 250 17,983.84 6.63 -1.95
Nikkei 31,949.89 3.09 17.46
CSI 300 3,584.14 0.61 -4.86
S&P 500 4,358.34 5.85 15.59
Nasdaq 13,478.28 6.61 28.67
CAC 40 7,047.50 3.71 9.84
Dax 15,189.25 3.42 12.85
$ per £ 1.2373 1.85 9.67
€ per £ 1.1528 0.51 1.11
Gold £/oz 1,609.02 -2.78 8.87
Brent Oil $/barrel 84.89 -4.83 -13.88

Weekly Summary

The industry seems to be feeling the impact of high material and finance costs alongside an uncertain economic context which has delayed decisions and slowed the pipeline. Labour costs continue to be an upward pressure, and there continue to be questions over the cost of energy as we enter the winter period and tensions rise in the Middle East.

A stable base rate is good news, but the Bank of England’s commentary on the UK’s economy gives a stark warning about the road ahead.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst