The road ahead

Economic Week In Review | Issue 406 | 20 November 2023

UK construction and property

  • Planning fees | The Department for Levelling Up, Housing and Communities has confirmed that planning application fees will increase by 35% for major applications from 6th December. Other applications could increase by 25% plus annual inflation-related adjustments from April 2025. The planning guarantee for non-major applications has been reduced from 26 weeks to 16.
  • London office output | The latest Deloitte Crane Survey reports 5.1 million square feet of new starts across 43 schemes between April and September 2023; the highest volume of new starts since the survey started in 2005. Refurbishments have broken records for the second time in a row, with 34 schemes amounting to 3.3 million square feet. The DeVono London Office Market Snapshot was also released this week, showing that leasing was up 12% on the quarterly average, with premium tower rents in the City reaching £120/sqft, 45% higher than five years ago.
  • From HS2 to potholes | The Prime Minister has outlined plans to use £8.3bn of funding which was previously promised to HS2 to tackle the “scourge of potholes”. The money will be transferred to local councils in England over the next 11 years. However, the cost of repairing roads is thought to be closer to £14bn.
  • Hybrid delays | The chief executive of the Infrastructure and Products Authority has told MPs that hybrid working was one of the main reasons that HS2 fell behind programme and ultimately was declared unachievable.
  • HS2 jobs | The number of jobs supported by HS2 has reached a record high of 30,204.
  • Life sciences | British Land and Savills expect the UK’s life sciences market to generate an additional £4bn in gross value by 2035 if it matches the pace of growth seen in the US. The report, Accelerating Innovation, suggests that 67,000 more jobs and an additional £1.1bn in annual tax could be generated for the Treasury. There remains a dearth of real estate space in the Golden Triangle, with vacancy rates in Cambridge and London being just 1%.
  • Hospital programme | The Public Accounts Committee published a report voicing extreme concern over the New Hospital Programme, warning that it is unlikely to meet its target to construct 32 new hospitals by 2030. It also warned that when the hospitals are delivered, they are likely to be too small for future needs.
  • Dumped diggers | The Trade Remedies Authority is investigating the importing of excavators from China after JCB logged a complaint accusing them of being bought at prices below their normal value, questioning whether they benefit from government subsidies.
  • Plant tax breaks | The Construction plant-hire Association has asked for the Chancellor’s Autumn Statement to include the fuel tax rebate for hydrotreated vegetable oil (HVO) to be reintroduced for at least two years and for the new full expensing allowance to be extended to the construction plant hire industry.
  • Housing minister | The latest Cabinet reshuffle saw Lee Rowley made minister of state for housing. He is the 16th to hold the position since 2010.

Materials and commodities

  • Raw materials | The S&P GSCI index, which tracks 24 major raw materials, has fallen 4% since the beginning of the year with battery metals losing between 70% to 40%. Société Générale attributes it to the “irrational exuberance of 2021-2022 rather than some kind of massive doom and gloom setting in”.
  • Energy prices | An “unusually mild winter” and virtually full natural gas storage has pushed energy prices in Europe down to €47/megawatt hour, 60% lower than last year. UK natural gas prices have seen a similar fall, however in general, prices are much higher than their historical averages.
  • Aggregates | The Scottish government has proposed a new tax on construction aggregates. If approved, it will be introduced on 1st April 2026, replacing the UK aggregates levy.

UK economy

  • Consumer price inflation slowed to 4.6% as the cost of energy fell.
  • Post-Brexit tourism | Data from New West End Company shows that the value of sales to Chinese tourists in London has not increased, despite visits nearing pre-pandemic levels. Visitor numbers are just 2% lower than in September 2019, but sales were down 58%. The loss of tax-free shopping post-Brexit is thought to be to blame.
  • Retail sales reached their lowest level since 2021 lockdowns, with shoppers buying less fuel and food in October. The volume of goods sold last month fell 0.3%. Sales often fall in October as consumers hold off on large purchases, awaiting the Black Friday sales throughout November.
  • Sunday trading | The Knightsbridge Partnership Business District (BID) has called on the government to relax Sunday trading rules to allow longer trading hours. It claims the move would generate an additional £300m a year.
  • Battery investment | The Chancellor is expected to announce a wider package of support to lure investors to the UK to develop batteries for electric vehicles. The manufacturing sector is expected to receive support in this week’s Autumn Statement, with a series of subsidies, tax breaks and grants.

Global economy

  • US inflation slowed from 3.7% in September, to 3.2% in October. Core inflation (which excludes food and fuel) rose 4.0%.
  • Consumer spending | The OECD reports that consumers are spending $600bn less on services than expected if following pre-Covid trends. Instead, they spent more on furnishings, clothing, and hobbies. The trend is less noticeable in countries that spent less time in lockdown.
  • European interest | The European Central Bank (EBC) will not begin cutting rates for at least the next couple of quarters. The head of the ECB said that inflation needs to come down to 2% before rates are lowered. The base rate currently stands at 4.5% and inflation at 2.9%, having fallen from 4.3% in September.
  • China | Foreign businesses have been withdrawing money from China at a faster rate than investing in the nation, due to slower growth and low interest rates.

Environment

  • Offshore power | The government has increased the price that it pays per megawatt hour from £44 to £73 to try and encourage companies to invest. Its last auction for offshore wind projects failed to attract any bids.

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 7,504.25 1.95 1.61
FTSE 250 18,567.87 4.00 -3.71
Nikkei 33,585.20 3.12 20.38
CSI 300 3,568.07 -0.51 -6.14
S&P 500 4,514.02 2.24 13.84
Nasdaq 14,125.48 2.37 26.73
CAC 40 7,233.91 2.68 8.87
Dax 15,919.16 4.49 10.31
$ per £ 1.2427 1.84 4.43
€ per £ 1.1425 -0.12 -0.65
Gold £/oz 1,589.59 0.25 7.96
Brent Oil $/barrel 80.61 -1.01 -8.00

Weekly Summary

The news this week demonstrates the creeping reticence of investors or consumers to spend, in part caused by the rising cost of goods and services, but also due to uncertainty over what comes next. Whether it is the Autumn Statement, changing policies (and political heads), or simply the Black Friday sales, many have found reasons to delay decisions. Yet, whilst general consumer inflation has slowed, it is still increasing at a high level. It seems that there are just too many uncertainties at the moment, and a need for at least some of these to solidify for nervousness to subside. The first emergence of light from behind the clouds might be easing inflation which could bring lower interest rates, even if current rates are both high.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst

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