Reading the signs

Economic Week In Review | Issue 411 | 8 January 2024

UK construction and property

  • Historic retrofit skills | The government has voiced support for increasing training on traditional building methods and materials in order to retrofit homes. A report by Capital Economics found that the UK needs more than 105,000 new workers, including 14,500 electricians and 13,400 plumbers to meet its Net Zero 2050 ambitions. Listed buildings and those in conservation areas account for 10% of the UK’s housing stock.
  • Northern Ireland | Commercial property investment into Northern Ireland in 2023 was at its highest level since 2015, according to CBRE NI. It expects 2024 to see further improvements.
  • Infrastructure spending | HS2 will award £5bn of contracts this year, overseeing building of the tracks, power, signalling, overhead lines, and the network control centre.
  • Unspent funds | A report by the Financial Times reveals that only £1.3bn of the £4.2bn Housing Infrastructure Fund has been spent since its creation in 2017, with the majority of that spend falling in 2021 and 2022. The GMB trades union claims that the slow uptake is due to incompetence rather than market forces.
  • Output | The latest S&P Global UK Construction PMI recorded 46.8 in December, an increase on November’s 45.5, but below the crucial 50.0 marker. 41% of businesses expect activity to increase this year, and only 17% expect it to fall.
  • Landownership | Michael Gove has called for greater transparency of landownership, saying that “for far too long we’ve turned a blind eye” to it. A consultation proposes to increase access to information held on Trusts by the Register of Overseas Entities.

Materials and commodities

  • Construction materials | The Builders Merchants Federation expects collective sales revenue to fall 2.2% in Q1 2024, compared with the same time last year but predicts the year as a whole to show 0.4% growth.
  • Iron ore mining | Rio Tinto’s new mine in west Africa is expected to start this year. The $20bn project was first granted a license in 1997 and has seen setbacks due to unstable politics, drawn-out court appeals, corruption allegations, and a collapsed sale. It will be the largest mining project in the world.
  • Shipping is under increasing pressure as cargo vessels are avoiding the Red Sea. The IMF’s PortWatch suggests that traffic around the Cape of Good Hope – a longer, more dangerous route between Asia and Europe – has increased substantially. Next and Ikea have warned of stock delays as a consequence.
  • Oil | After draining its reserves by 180 million barrels to reduce the impact of high oil prices, the US is refilling its Strategic Petroleum Reserve. The Reserve currently holds 354.4 million barrels.

UK economy

  • Manufacturing | Trade body Make UK and Pricewaterhousecoopers say that the UK is increasing its competitiveness as a global manufacturing hub but warned that the “headwinds of sustained economic challenges” remain.
  • Interest rates | Company executives have urged the Bank of England to lower interest rates after the Institute of Directors’ Economic Confidence Index fell to -28 from -21 in November.
  • Supermarkets | Sainsbury’s saw its sales grow 9.3% in the four weeks to Christmas, achieving its highest market share since December 2020. Analysts at Kantar said that retailers were “clearly working hard during the festive period to offer best value.”
  • UK services | S&P Global’s UK Services PMI showed output and new work grow for the second consecutive month, with the headline figure growing from 50.9 in November to 53.4 in December. Overall input cost inflation accelerated to a three-month high.

Global economy

  • Bad loans | Non-performing loans at the four largest US banks are expected to have increased to a combined value of $24.4bn, an almost $6bn increase since the end of 2022.
  • US shutdown | Congress managed to reach a $1.66tn spending deal just weeks ahead of a funding deadline which would have seen a complete government shutdown.
  • US jobs | Openings fell to their lowest levels since 2021, although the ratio of openings to unemployed people remained at 1:4. The number of people voluntarily leaving their roles also fell to the lowest since September 2020. The unemployment rate remained near an historic low.
  • Life Sciences | The University of California is to buy a $700m shopping mall which has been already redeveloped as offices for Alphabet’s Google. It plans to convert it into a medical and engineering research park.
  • Food prices | The United Nations’ food price index, which tracks five major raw commodity groups, is near a three-year low, and is substantially lower than its peak in February 2021, after falling 10% last year. However, it remains above its ten-year average.
  • Global manufacturing | The JP Morgan Global Manufacturing PMI fell to 49.0 in December, down from 49.3 in November. Overall output has fallen 13 times in the last 17 months.

Environment

  • New normal | Singapore’s Centre for Climate Research has modelled the effects of climate change and its medium- to worst-case scenarios expect daily maximums of 32.8C to 36.7C with extreme rainfall and dry spells becoming more common and severe.
  • Renewables mega-project | China has broken ground on a $7.7bn project in Shanxi province. The derelict coal area will see wind turbines, solar panels and battery storage installed, generating 6 gigawatts, and will be connected to the grid at the end of next year.
  • Wind energy | Germany’s RWE has confirmed plans for a third onshore wind farm in Scotland as part of a £6.9bn investment programme across the UK.
  • EV charging points | BT announced plans to retrofit 60,000 old street cabinets into EV charging points to tackle a shortfall. The UK government’s ambition is for the number of charging points to grow from the current 50,000 to 300,000 by 2030.
  • UK carbon emissions have halved since their peak in 1970, despite the population being nearly twice as large.
  • Nuclear fuel | The UK will become the first European country to develop high-assay low-enriched uranium (Haleu) to fuel advanced modular reactors which are expected to be operational in the 2030s. Currently, the only producer of Haleu is Russia, and as such European countries have continued to import it, whilst reducing other energy flows. The government has announced £300m of funding for the programme.

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 7,689.61 -0.56 -0.13
FTSE 250 19,210.39 -2.43 -1.51
Nikkei 33,377.42 -0.26 28.50
CSI 300 3,329.11 -2.97 -16.37
S&P 500 4,697.24 -1.52 20.59
Nasdaq 14,524.07 -3.25 37.42
CAC 40 7,420.69 -1.62 8.16
Dax 16,594.21 -0.94 13.58
$ per £ 1.2736 -0.02 5.55
€ per £ 1.1626 0.93 2.34
Gold £/oz 1,608.18 -0.75 4.23
Brent Oil $/barrel 78.76 2.23 0.24

Weekly Summary

The news this week demonstrates how finely balanced the market seems to be. Construction material sales have improved but are not expected to recover from last year’s losses; manufacturing is struggling globally, but domestic optimism is increasing; food prices are falling, but remain above the ten-year average.

The eroding force on a lot of these news pieces is the uncomfortably high bank rate, and the high cost of consumer goods which are affecting confidence.

Despite all of these concerns, it is encouraging to see a continued commitment to more sustainable energy generation, especially when we consider the research in Singapore showing that temperatures in excess of 32C are likely to become the new normal, and similar outcomes may exist across the globe.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst