Better things ahead?

Economic Week In Review | Issue 423 | 2 April 2024

UK construction and property

  • Payment rules | Contractors bidding for public works contracts over £5m must show that they pay 95% of invoices within 55 days, a significant tightening of the existing rule of 85% of invoices paid within 60 days.
  • Labour rates | Payroll provider Hudson Contract’s data shows that average self-employed construction wages rose to £1,017 per week in February after a usual fall in January due to bad weather. Wages were 2.3% higher than February 2023. Wages in London reached £1,094, an annual increase of 8.6%.
  • Builders’ merchants | Sales values have fallen 2.1% in January compared to a year earlier and volumes are 3.2% lower. Annual sales of the two largest categories, heavy building materials, and timber and joinery fell 3.8% and 6.3% respectively.
  • Student demand | According to Savills, almost 100,000 more student beds are needed in London where the student-to-bed ratio is one of the highest in Britain, at 3.6. It estimates that if all approved schemes proceed, the ratio will fall to 3.
  • Infrastructure forecast | The BCIS has issued its five-year forecast for civil engineering costs. It expects costs to rise 16% by the end of 2028 while tender prices are expected to increase 18% in the same period. Its forecast recognises that whilst output growth is expected to slow down, it has assumed the continuation of historically high levels of new work.
  • Thames Tideway tunnel | The £5bn project is now complete and commissioning is expected to take place over summer.
  • Second staircase guidance | The Building Safety Regulator confirmed that it is expecting to publish its technical guidance on the second staircase “before Easter.”
  • Growing optimism | The latest RIBA workload survey showed increasing optimism about future workloads, but uncertainty over the upcoming General Election and high interest rates impacting investment levels.
  • Volumetric support | The Housing Minister, Lee Rowley, announced a review of policies on modern methods of construction in response to a report by the House of Lords on volumetric housing production. It follows the collapse of several modular ventures.

Commodities and currencies

  • Yen | Japan’s Finance Minister said that the government would not rule out any intervention against excessive moves after the Yen fell to its lowest level against the US Dollar in 34 years. Analysts had expected the recent tightening in Japan’s monetary policy to have upward pressure on the Yen. It is currently ¥151.94 against the dollar, and many expect the state to intervene at ¥152.
  • Copper prices rose following improved factory data from China which suggested improved economic sentiment in the area. The country’s top smelters also agreed to an historic joint cut to production levels as fees to process copper fell to the lowest level in a decade.
  • Iron ore prices settled at around $100/ton, falling from $140 at the end of 2023 as China’s property market continues to show weakness and China’s steel mills said that conditions are expected to remain grim as supply and demand remain out of step.

UK economy

  • Minimum wage | This week the National Living Wage (NLW) will increase by 9.8% to £11.44. The government recently announced that it will now hold the NLW steady as a share of average earnings, much to the relief of businesses who have warned about the pace of recent increases.
  • Grocery inflation returned to pre-Ukraine invasion levels, having eased to 4.5% in the four weeks to 17th It reached a peak of 19.2% in March 2023. Food prices were the main driver of the larger-than-expected fall in the rate of inflation.
  • House prices unexpectedly fell, according to Nationwide. The building society says that house prices fell 0.2% in March, after increasing by 0.7% in both January and February. It reported that activity has increased but remains relatively subdued by historic standards. Separate research from Hamptons showed that first-time buyers accounted for a third of all sales, a record.
  • Recession | New data from the ONS confirmed that the UK fell into recession at the end of 2023 as GDP fell 0.3% in Q4, after a 0.1% fall in Q3.
  • Trade dispute | Deadlock over a UK/Canada trade deal means that British cars exported to Canada will face tariffs of 6.1% from 1st April if they contain significant EU content.

Global economy

  • New York property | The total unpaid property tax is expected to reach a new record, increasing by 30% when compared to three years ago. Half of the city’s tax revenue comes from property tax. The total unpaid has been increasing after a tax-lien sale programme which punishes delinquency expired in March 2022 and wasn’t reauthorised. It adds to the city’s property woes as the overall vacancy rate for office space in Manhattan stood at 22.5% at the end of 2023.
  • Hong Kong property | New home transactions reached an 11-year high last month with sales totalling 14 times the previous month. However, analysts expect sales values to fall 5% this year.
  • US economy | The Congressional Budget Office warned that US federal government debt is on a path to increase from 97% of GDP last year to 116% in 2034, a level higher than World War 2. The ratio would increase to 123% in 2034 if market expectations for interest rates are realised.

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 7,952.62 0.27 4.20
FTSE 250 19,884.73 0.81 5.05
Nikkei 40,168.07 -1.76 43.25
CSI 300 3,520.97 -0.16 -13.08
S&P 500 5,254.35 0.39 27.86
Nasdaq 16,379.46 -0.30 34.02
CAC 40 8,205.81 0.66 12.06
Dax 18,492.49 1.57 18.32
$ per £ 1.2633 0.25 2.14
€ per £ 1.1696 0.38 2.81
Gold £/oz 1,766.37 2.96 10.62
Brent Oil $/barrel 87.48 2.40 9.67

Weekly Summary

Confidence in the construction market seems to be improving with prospects for better future demand than in recent years, however, this doesn’t seem to have manifested into current working confidence and workloads due to continued high interest rates and ongoing uncertainty over the date of the General Election. The challenge now is to watch for the signs of this optimism becoming tangible.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst