Green shoots?

Economic Week In Review | Issue 422 | 25 March 2024

UK construction and property

  • Cladding | Data from the Department for Levelling Up, Housing and Communities shows that remediation works are yet to start on 58% of buildings which were identified as having “life-critical” unsafe cladding.
  • Gove intervention | Michael Gove announced an intervention into the London Plan and has asked the Greater London Authority to report back by September on why house-building targets are not consistently not met.
  • Low-carbon buildings | JLL has released a report warning that the industry is reaching a “tipping point” as one in three leases tied to a carbon commitment will expire in the next two years. It found that in 21 cities around the world, 30% of demand for low-carbon space will not be met by 2025 and in London, demand is set to exceed supply by 35% in 2030.
  • Carbon concerns | Property owners in Europe are concerned after the prospect of new carbon regulations could cause value writedowns. Owners will need to ensure that their buildings fall below a legal level of carbon dioxide emissions and energy consumption. The Energy Performance of Buildings Directive will be phased in gradually over a decade.
  • HS2 plants | The futures of Hitachi and Alstom’s UK factories, which were set up to deliver trains for HS2, are in question because a lack of orders has created a gap in production. They won a contract worth up to £2.8bn to build 54 trains for the line in 2021.
  • Potholes | The 2024 Annual Local Authority Road Maintenance Survey (ALARM) revealed that more than half of the road network in England and Wales could fail in the next 15 years and the amount of funding needed for the backlog of repairs has reached a record £16.3bn. At the same time, 45% of local authorities have frozen their highway maintenance budgets.
  • 2024 projections | Kingfisher, the owner of B&Q, has warned of a weak 2024 as it expects lower profit levels following a slowdown in the housing market and low consumer confidence.

Materials and commodities

  • Oil | The US has advised Ukraine to halt attacks on Russian refineries due to risks to the global oil market. Oil prices have risen 15% this year so far. Crude oil refining volumes in Russia fell to a ten-month low after the attacks.
  • Steel oversupply concerns | Shipments of steel from China are at an eight-year high as domestic consumption remains low due to a slowdown in the property market. Last year, exports reached a seven-year high and 2024 is expected to match it. The head of steel at Argus Media was reported as saying “There’s too much steel in the world.”
  • Copper | The Chief Economist at Trafigura Group, a commodity trading and logistics investor, told reporters that there was “no limit” or “peak” to global copper demand, but he did detail a problem called the “30-40-50 problem”: each mining project is 30% smaller, capex is 40% larger and it takes 50% longer to bring projects into production.
  • Aluminium prices rose to an 11-week high as demand increased, especially from China. Increases are expected to be limited due to the current strength of the dollar to which the commodity is tied.
  • Shipping | A resurgence of attacks on ships by Somali pirates has pushed up the cost of security guards and insurance coverage for ships passing around the Cape of Good Hope, to avoid the Red Sea. Shipping organisation Maersk announced that it will still avoid the Red Sea despite an EU security operation in the region as its assessment of the situation put it at too much of a risk.

UK economy

  • Bank rate |The Bank of England’s Monetary Policy Committee voted to maintain interest rates at 5.25%. The Governor of the Bank of England suggested that rate cuts will be “in play” at forthcoming meetings as there are encouraging signs of falling inflation.
  • Retail sales | Data from the ONS revealed that sales volumes in Britain were unchanged between January and February, after a 3.6% increase in January. A fall of 0.3% had been expected.
  • Housing value | Analysis by the Resolution Foundation has found that the UK’s home affordability is much poorer than other countries. It found that if all homeowners and subsidised renters were to rent their homes on the open market, they would have to use 22% of spending on housing services, a larger share than in any OECD country except Finland.

Global economy

  • Negative interest rates | Japan ended its run of negative interest rates with its first rate rise in 17 years. However, it comes at a time when most global banks are considering rate cuts to curtail inflation. The Bank of Japan has kept rates low for so long to prompt growth, avoid deflation, and keep the Yen stable. Critics of the policy have commented its market fundamentals have not changed. The IMF expects GDP to increase by 0.5% annually over the next four years.
  • Lower rates | The Swiss National Bank surprised analysts by announcing a reduction to the base rate. The reduction to 1.5% from 1.75% is the first from a major Western economy in the current cycle.
  • Demographics | Research published in the Lancet warns that three-quarters of the world’s nations are projected to fall below a population replacement birth rate by 2050 and population growth will rely on low-income states. This has implications for resource use and the impacts of climate change.
  • Fiscal policy | The European Council backed a slightly tighter fiscal policy for the Eurozone in 2025, aimed at reducing inflation (which was 2.6% in February) and stabilising public finances which have been under pressure from extra spending throughout Covid and the energy price crisis.
  • Vulnerable banks | US banking industry consultant Klaros Group has found that almost 300 banks have significant exposure to corporate real estate. 282, with $900bn in total assets, have a combined real estate loan value of 300% of their capital.

Environment

  • Temperatures |Hong Kong reported its highest March temperature in 140 years, reaching 31.5C. The Observatory expects the city to see above-normal mean temperatures this year. Additionally, the World Meteorological Society confirmed that 2023 was the warmest year on record, with average surface temperatures being 1.45C warmer than pre-industrial levels.
  • Carbon charges | The International Maritime Organisation is preparing to use the shipping industry as a test bed for a global, mandatory charge on greenhouse gas emissions. The United Nations will finalise the plans next year, to introduce it in 2027.

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 7,930.92 2.63 7.10
FTSE 250 19,724.32 1.08 6.65
Nikkei 40,888.43 5.63 49.31
CSI 300 3,558.59 -0.32 -11.63
S&P 500 5,234.18 2.29 31.81
Nasdaq 16,428.82 -3.21 38.95
CAC 40 8,151.92 -0.15 16.21
Dax 18,205.94 1.50 21.72
$ per £ 1.2020 -1.08 3.09
€ per £ 1.1652 -0.42 2.58
Gold £/oz 1,715.54 1.31 6.06
Brent Oil $/barrel 85.43 0.11 12.54

Weekly Summary

This week’s commodity and shipping news shows us that we are not quite back on stable ground – unwelcome news as material costs remain high.

Arguably the more important news, especially through the lens of the World Meteorological Society, is that sustainability and careful use of resources are rising up the agenda. Consequent demand for low-carbon space will hopefully be a welcome boost to output levels.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst