The money issue

Economic Week In Review | Issue 414 | 29 January 2024

UK construction and property

  • Modular disarray | The House of Lords Built Environment Committee has found that the government’s approach to modern methods of construction (MMC) is “in disarray”. It found that “millions of pounds of public money has been invested, but the money has not been backed by a coherent strategy and set of measurable objectives.” However, it also suggests that with the right approach, MMC could play a vital role in delivering housing.
  • Architectural fees | In its most recent Future Trends report, the RIBA has warned that competition from unregistered “architectural designers” is driving down fees. It also voiced concerns at the increased number of clients who are not paying invoices on time, threatening cash flows.
  • Construction finances | Begbies Traynor has reported that in Q4 2023, the number of construction firms at risk of collapse increased by 33% to 7,849. In the Real Estate and Property Services sector, the figure increased by 25%.
  • Insolvencies | Accountancy firm Mazars has produced an analysis showing that 17% of all construction companies became insolvent last year, with “on average a dozen building companies going under every single day.”
  • Hinkley delays | EDF has warned that Hinkley Point C is expected to cost an additional £10bn, and will be delivered three years late, after completing the design for the fitout. It explained that 15 months of the delay was due to the pandemic, that “restarting the British nuclear industry has been hard” and changing the design to meet British regulation has meant “7,000 design changes, 35% more steel and 25% more concrete.”
  • Infrastructure funding | The government has allocated an additional £1.3bn to the construction of Sizewell C. It is the largest funding package to date and will help the project to stay on schedule, allowing early construction works to continue ahead of a final investment decision later this year.
  • HS2 | Major earthworks have begun at Birmingham’s Curzon Street Station, preparing the site for piling and foundations in the spring.
  • Output | The Construction Products Association has forecast output to fall 2.1% in 2024 and suggests that the fall in the housing market is worse than previously expected. In its last forecast it was forecasting 0.7% growth..

Materials and commodities

  • Brick prices | Forterra introduced a number of price increases after mothballing two factories and announcing redundancies.
  • Asian steelmakers are withdrawing from the European market as revised shipping routes (to avoid the Red Sea) have increased costs by an average of $75/tonne and extended delivery times by three weeks, according to research by MEPS International. It comes at the same time as the new EU Carbon Border Adjustment Mechanism comes into force which also challenges the appeal and availability of imports.

UK economy

  • Housing market | The latest survey from the RICS shows that the housing market is improving as mortgage rates fall. Near-term and year-ahead sales expectations have increased for a consecutive month. The house price trend is expected to remain largely flat across the year.
  • Tax cuts | The Institute for Fiscal Studies (IFS) has said that “tax cuts today add to the risk of tax rises or spending cuts tomorrow” as it warned that the UK economy faces some of its worst problems since the 1950s. However, the Office for National Statistics (ONS) showed lower-than-expected government borrowing which analysts have suggested gives the Chancellor “wiggle room” for tax cuts in the Budget in March.
  • Bank rate | The Bank of England is expected to hold the central rate steady at 5.25% despite slowing inflation, at its meeting on Thursday.

Global economy

  • US economy | Faster than expected growth was seen in the US economy in the last quarter of 2024, driven by strong household spending. The economy grew at an annual rate of 3.3%, more than the 2% analysts had expected.
  • Evergrande | The debt-laden Chinese developer has been ordered by a court in Hong Kong to liquidate. Its Chinese business could be unaffected but share prices have fallen rapidly and trading has paused.
  • Indian economy | India’s Finance Ministry said that its economy is likely to grow by 7% in the next fiscal year and may exceed that pace in the following years. A strong financial sector and business reforms support its economy. However, it warned that the risk of geopolitical conflicts is a concern. India’s stock market value surpassed that of Hong Kong for the first time last week.
  • Chinese economy | The People’s Bank of China will cut the Reserve Requirement Ratio (RRR) for banks within two weeks in its latest attempt to support its economy. The RRR dictates the amount of reserves that banks must maintain. The reduction is expected to free up $140bn of cash into the market.

Environment

  • Climate funds | Sales of climate-focussed mutual funds have fallen by 75% in the last two years. The sector has been impacted by high interest rates and campaigns against “woke” investment.

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 7,635.09 2.32 -1.67
FTSE 250 19,338.02 2.51 -3.48
Nikkei 35,751.07 -1.82 30.56
CSI 300 3,333.82 2.00 -20.27
S&P 500 4,890.97 1.06 20.15
Nasdaq 15,455.36 0.94 32.99
CAC 40 7,634.14 3.56 7.57
Dax 16,961.39 2.45 11.96
$ per £ 1.2718 0.34 2.73
€ per £ 1.1704 0.53 2.66
Gold £/oz 1,589.07 -0.20 2.16
Brent Oil $/barrel 83.55 6.35 -3.59

Weekly Summary

Finances and insolvencies are clearly a focus for the industry, having weathered a prolonged period of uncertainty. The news of Hinkley Point’s budget and programme extension demonstrates the significant impact that the events of the last few years have had.

We continue to monitor events in the Red Sea and any impacts for our industry.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst