Supply questions

Economic Week In Review | Issue 412 | 15 January 2024

UK construction and property

  • Nuclear | The government announced plans for a third gigawatt-scale nuclear power station project, with a Civil Nuclear Roadmap to increase power generation by up to four times by 2050. At the same time, EDF outlined plans to extend the lives of its nuclear power stations in the UK, running Sizewell B for an additional 20 years.
  • Debt worries | A study by Bayes Business School suggests that 40% of outstanding UK commercial property loans are due to mature in 2024 and 2025. Increased debt costs will make refinancing a challenge.
  • Energy inefficiency | Research from CBRE shows that up to 11.9m sqft of office space with an EPC of C is expected to be released onto the market by the end of 2027 due to the expiry of large leases.
  • Pothole hopes | The AA estimates that potholes have caused £500m damage to cars, with almost 630,000 potholes reported to councils in England, Scotland, and Wales. Several technological solutions have been sought such as a robotic van that can repair and repaint the road, and an autonomous robot being trialled on Hertfordshire’s roads.
  • HS2 Phase 1 | Sir Jonathan Thompson – Chair of HS2has warned that the rise in the cost of materials such as concrete and steel over the past few years has added £8bn to £10bn. Current estimates for Phase 1 stand at between £49bn and £56.6bn, but at 2019 prices. He added that the cost of delivery is more than the government budgeted.
  • Build-to-rent investment volumes last year surpassed 2022 by 10%, totalling £4.3bn according to CBRE. After a subdued Q2 and Q3, volumes increased at the end of the year.
  • Contract awards | Data from Barbour ABI shows that construction contract awards fell by £11.1bn to £69.2bn in 2023, a 14% reduction. Applications for new planning permissions fell 16%.
  • Construction skills | Catherine Storer, Executive Director of Essential Site Skills (ESS) has suggested that a route out of the skills crisis is to diversify the workforce, and bringing in “various perspectives, skills and experiences, which can contribute to innovation, increased productivity and a more resilient workforce.”

Materials and commodities

  • Energy shock | An escalation to the crisis in the Middle East has pushed oil prices up 4% to $80, however after a weak start to the year, oil prices remain fairly low. The UK Treasury has modelled various outcomes of the crisis, with its main fear being a $10 increase in the price of oil and $25 increase to the price of natural gas.
  • Uranium prices have reached a 15-year high after warnings that a shortage of sulphuric acid is limiting production levels at a time when demand from nuclear power is increasing.
  • Shipping | Exchange-Traded Funds (EFTs) that track shipping stocks increased at the end of last week as the US /UK airstrikes took place against Yemen’s Houthi rebels in response to attacks on ships in the Red Sea. Shipping companies have diverted around the Cape of Good Hope, but the alternative route is longer and as a result, prices have increased. Tesla has joined the companies announcing the impact of the issue, saying that it has had to pause production at its German plants because of delays to the delivery of parts.
  • Steel levy | The UK will introduce a climate levy on steel imports from 2027, with the tax dependent upon the amount of carbon emitted in the producing country and the gap between the carbon price in the UK and in the country of origin. Carbon costs in the UK have fallen 54% this year to £35.75/ton (€41.48), compared to €68.17 in the EU.
  • French steel emissions | ArcelorMittal SA and the French State is to invest €1.8bn in reducing the amount of carbon produced at its Dunkirk plant, cutting France’s industrial emissions by 6%. It will fund two electric furnaces and a direct reduction plant.
  • Turkish steel | Erdemir Group has announced a $3.2bn plan to fund two electric arc furnaces, 1,000 megawatts of solar capacity, carbon capture facilities, and a $550m pelletising plant.

UK economy

  • Growth | The UK’s Gross Domestic Product (GDP) rose 0.3% in November, driven by growth in the services sector, diminishing fears of a technical recession after a fall in the three months to September. However, economists have warned that the UK is still at risk of a contraction.
  • Mortgage rates | Forecasts of a cut to the Bank of England’s base rate have encouraged lenders to reduce fixed-rate mortgage deals, with some offering below 4%.
  • Retail sales | The British Retail Consortium-KPMG Retail Sales Monitor revealed that a year of disappointing sales for retailers led into a disappointing Christmas period with sales increasing by only 1.7%, much lower than the 7% increase in 2022.

Global economy

  • US inflation increased to 3.4%, from 3.1%. Economists had expected a gentler increase to 3.2%.
  • China’s economy | The People’s Bank of China held the key interest rate at 2.5% despite concerns over its economy. Most investors had expected a reduction, but economists reasoned that cutting the rate would destabilise the yuan.
  • Germany | Gross Domestic Product (GDP) fell 0.3% in 2023 but was still above pre-pandemic levels. Retail sales, exports and industrial production all fell.
  • Japan | Three-fifths of prime-listed companies in Japan are yet to announce how they plan to improve their cost of capital and governance. New plans to “name-and-shame” companies with low price-to-book ratios (where their market value is less than their net assets). According to the Japan Exchange Group, roughly half of the companies listed in its prime index have a ratio of less than one, compared to 5% in the S&P500 companies.
  • Davos | World leaders are meeting at the World Economic Forum to discuss the ongoing “polycrisis.” A few weeks ago, leaders had hoped to meet and draw a line under recent shocks such as the pandemic and energy price shocks from the war in Ukraine.
  • European growth | A poll of economists shows that three-quarters expect “weak” or “very weak” growth in Europe this year.
  • Taiwan election | Taiwan has officially voted in its next president, a pro-sovereignty candidate.

Environment

  • Temperatures | US scientists have confirmed that 2023 was the hottest year ever recorded globally.

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 7,624.93 -0.84 -2.79
FTSE 250 19,197.62 -0.07 -3.76
Nikkei 35,577.11 6.59 36.21
CSI 300 3,284.17 -1.35 -19.39
S&P 500 4,783.83 1.84 19.62
Nasdaq 14,972.76 3.09 35.14
CAC 40 7,465.16 0.60 6.29
Dax 16,704.56 0.66 10.73
$ per £ 1.2746 0.08 4.53
€ per £ 1.1629 0.03 3.11
Gold £/oz 1,606.92 -0.08 2.37
Brent Oil $/barrel 78.29 -0.60 -8.20

Weekly Summary

The UK’s plans for additional nuclear power help to give some certainty to suppliers and is a positive move away from fossil fuels in light of the warnings on temperature, however, the warnings of a shortage of uranium are a stark reminder that nuclear power is not a renewable energy source.

The new year has brought yet more concerns of broken supply chains and delayed deliveries, and therefore offers a stark reminder that we need to work to understand the complete construction supply chain.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst