Headwinds and progress

Economic Week In Review | Issue 409 | 11 December 2023

UK construction and property

  • PMI | The latest S&P Global / CIPS survey showed a fall to 45.5 in November, down from 45.6. It is the third successive month below the critical 50.0 marker. Combined with falling new orders, it expects that high interest rates and the general election will limit output next year.
  • Lettings | Three lettings in 22 Bishopsgate, amounting to 65,000sqft, mean that the tower is now 92% let between a diverse mix of occupiers. It is suggested that the new shows that occupiers are still looking for high-quality, amenity-rich space.
  • Modular schools | Three schools which were built using a modular system are to be demolished following concerns that they could collapse under high wind or snow. The schools were completed under the Department for Education’s modular framework which was set up in 2020 to fast-track projects and deliver better value for money.
  • Housebuilding | Alongside its annual report, Berkeley Homes announced that it was halting new investment until “market and regulatory cycles inflect.” It also commented that whilst “cost inflation across the majority of trades has receded to negligible levels”, it is increasingly concerned with the possibility of insolvency within its supply chain.
  • Late payments | A survey by Scotland’s Construction Industry Collective Voice (CICV) found that 80% of contractors faced late payments, and 63% faced unexplained payment reductions. The CICV is demanding reform in the industry.
  • Migrant labour | The government is to reduce the number of roles on the Shortage Occupation List to seek to reduce overall migration levels. Construction roles were only added to the list in July 2023, and the move has caused concern in the industry that it will become more difficult to fill skills gap and combined with the cost of training, recruitment costs will be too high.
  • Conservation area | The City of London is expected to approve a new conservation area to the east of the Gherkin. The move will introduce additional planning requirements for the area to ensure that new buildings do not negatively impact historic buildings.
  • Boring record | Strabag UK has broken a world record for the world’s longest single tunnel boring machine drive at its Woodsmith Mine tunnel near Whitby. The tunnel will be used for a mineral transport system and will be almost 37km long. The drive has currently completed 25.8km.
  • Infrastructure projects | A joint venture between Bouygues and Murphy has been confirmed for the delivery of the Lower Thames Crossing. The tunnel will not only be one of the longest road tunnels in the UK at 4.2km, but the bored tunnels will be some of the largest in the world at 16m wide. It is the last of three major contract packages for the scheme.
  • Overseas work | The RIBA reported that overseas-generated revenue at registered practices rose 43%, whilst total revenue increased 17% in the year to May 2023. However, profit levels rose just 2%.

Materials and commodities

  • Concrete “recipe” | The BSI has approved a new type of concrete which is expected to remove 1 million tonnes of carbon dioxide emissions every year, if adopted on all UK construction sites. The new recipe combines finely ground limestone with other materials such as fly ash and ground granulated blast furnace slag. Every 5% of limestone powder added can generate a 5% CO2 reduction per tonne of concrete.
  • Russian gas | The EU is passing new legislation to give member states the power to stop Russia and Belarus from buying capacity in its gas pipelines. The move enables member states to end contracts with Russia without paying compensation. The bloc has hugely reduced its dependence on Russian energy, but still gets about 10% of its gas from Russia, however, this is largely concentrated in Austria and Hungary.

UK economy

  • Inflation expectations | Consumers’ opinion on the future of inflation has fallen to a two-year low, with most not expecting the Bank of England to need to raise interest rates to counter future inflation rises. Average CPI expectations for the year ahead have fallen to 3.3%, compared to 3.6% in August.
  • Financial reforms | A Treasury Select Committee has classified the Chancellor’s Edinburgh Reforms – a December 2022 “shake up” of the financial sector to create jobs, support businesses, and power growth – as a “damp squib”. It found that the reforms amounted to little more than” preparatory work rather than outright reforms” and that many will fail to drive growth.
  • Mortgage rates are falling back from their 14-year high, with the average two-year fixed rate back below 6%, and the average five-year fixed rate fell to 5.6%, the lowest since June. The two-year fixed peaked at almost 6.9% in July.
  • House prices | Rightmove reported that UK asking prices have fallen 1.9%. Relatedly, UK Finance (which represents banks) suggested that lending for housebuying will fall by 8% next year.
  • Second cities | A new report from The Economy 2030 – a collaboration between the Resolution Foundation and the Centre for Economic Performance – argues that growth in Britain’s second cities, Birmingham and Manchester, is key to breaking the country’s cycle of low-growth and falling real wages.

Global economy

  • Electric vehicle tax | The EU plans a three-year delay to post-Brexit tariffs on electric cars. Under current plans, such trade between the UK and the EU would attract a 10% tariff due to “rules of origin” issues.
  • US jobs | The US added 199,000 jobs in November, and the unemployment rate fell to 3.7%. It is expected to strengthen the Federal Reserve’s view that the economy can withstand higher inflation rates.
  • China | Consumer price inflation fell to -0.5%, a sharper decline than expected.

Environment

  • 2025 emissions target | The UK Green Building Council has warned that slow progress over the last four years in reducing emissions targets, means that the industry needs to decarbonise twice as fast in order to meet the 2025 emissions target. Between 2018 and 2022, carbon emissions from the built environment needed to fall by 19%, but the achieved reduction was only 13%. Embodied carbon has only fallen by 4%, less than a quarter of the amount needed for the pathway.

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 7,554.47 0.33 1.04
FTSE 250 18,701.99 1.59 -1.13
Nikkei 32,307.86 -3.36 15.79
CSI 300 3,399.46 -2.40 -14.98
S&P 500 4,604.37 0.21 17.03
Nasdaq 14,403.97 0.69 30.89
CAC 40 7,526.55 2.46 12.71
Dax 16,759.22 2.21 16.62
$ per £ 1.2537 -1.15 1.81
€ per £ 1.1667 0.09 -0.02
Gold £/oz 1,597.47 -2.01 8.89
Brent Oil $/barrel 75.84 -3.85 -0.34

Weekly Summary

This week serves as a reminder that the industry needs to focus on developing the skills of the future and how to achieve emissions targets, despite the regulatory backdrop being changeable and unpredictable (especially with a looming general election). With the Christmas break on the horizon, hopefully, when we return in the New Year, we will see some progress on this and – in turn –  some stability.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst