Silver linings and clouds

Economic Week In Review | Issue 424 | 8 April 2024

UK construction and property

  • Output prospects | The latest S&P Global UK Construction Purchasing Managers’ Index rose from 49.7 to 50.2 in March, showing the construction industry moving into growth for the first time in six months. Civil Engineering was the main driver, with commercial and housebuilding largely unchanged. 49% of people surveyed were expecting to see an increase in workloads and only 11% expected a fall. Respondents said that tender opportunities had been helped by easing borrowing costs and a general improvement to the UK’s economy.
  • Decarbonisation | The Construction Industry Council (CIC) has responded to the Government’s consultations on Future Homes and Building Standards urging an acceleration of futureproofing and decarbonisation, expressing disappointment that the consultation was not ambitious enough. The CIC said that the Government needs to create a sufficiently capable workforce to oversee the installation and maintenance of energy-saving measures, and that guidance is required on the available technology.
  • British Steel | Planning permission has been given to build an electric arc furnace on Teeside, and a further application has been submitted for a plant at its Scunthorpe site. Chinese-owned British Steel is holding out for financial assistance from the UK Government before beginning construction. The transition will reduce the British Steel’s CO2 emissions by more than 75%.
  • Second staircase | Full guidance was released last week by the Department for Levelling Up, Housing and Communities which confirmed the threshold for a second staircase is 18m, and defined evacuation shafts, evacuation lift lobbies and interlocked stairs, and storey exits.
  • Rent | UK rent is forecast to outpace wage growth for the next three years, according to the Resolution Foundation, with wages rising by 13% compared to just a 7.5% increase in wages.
  • Retrofit first | Westminster Council has rejected a planning application to demolish and rebuild a 1950s building on Savile Row despite the developer stating it had taken a retrofit first approach before opting to demolish, pointing to inflexible floorplates, low floor to ceiling heights and poor operational carbon.
  • Levelling Up | Liverpool is to become the first city to establish a locally-led development corporation using powers offered by the Levelling Up and Regeneration Act. The Liverpool Strategic Futures Advisory Committee – formed from the public and private sectors – has identified nine priority sites.
  • Battersea Power Station | The owners of Battersea Power Station secured one of the largest refinancings of the last two years after its initial £1.1bn debt facility matured in March.

Materials and commodities

  • Oil | Prices softened slightly as tensions in the Middle East eased after Israel withdrew more soldiers from southern Gaza and agreed to talks on a potential ceasefire. However, this softening in price came after oil prices had increased following Mexico’s decision to cut its oil exports.
  • Gold prices have reached a record high and the People’s Bank of China has been a consistent buyer of gold. It’s thought that the turmoil in the Middle East has encouraged investors to buy gold.
  • Iron ore futures pricing in Singapore rose 6% to $104 on speculation that demand from China will increase. China Industrial Futures claimed that mills are restarting after profit levels improved.

UK economy

  • IR35 | A survey of freelancers by the Association of Independent Professionals and the Self Employed (IPSE) found that 21% were out of work, and half of those blamed the impact of IR35 changes in the private sector, and “not being incentivised to return to the labour market.” 55% of freelancers said that they had rejected a work offer in the last 12 months as it would have been inside the rules of IR35.
  • Interest rates | The International Monetary Fund (IMF) has warned central banks against keeping interest rates high for too long because of the impact on homeowners on fixed-rate mortgages. The UK has one of the highest proportions of fixed-rate mortgages.
  • Indebted companies | The Bank of England is investigating how private equity companies and their portfolio companies are performing in the era of higher interest rates. The Financial Policy Committee has reported that private equity providers have used “amend and extend” agreements to push back payment dates, rather than try to refinance debt at a higher rate. It warned that the impact of this could increase the risk of “larger than expected credit losses being incurred in the future.”

Global economy

  • Ireland | Housing is expected to be a focus of the upcoming election. Knight Frank estimates that 58,000 units are needed every year until 2027.
  • China’s economy is expected to grow by 5.3% this year as its property sector stabilises with ongoing support, according to Singaporean ASEAN+3 Macroeconomic Research Office.
  • US jobs | 303,000 new jobs were added to the US workforce last month, well above the expected 192,000 and the unemployment rate fell to 3.8%.

Environment

  • Climate crisis impacts | Network Rail will spend almost £3bn to protect the network from the impacts of a changing climate. It warned that hotter summers and more frequent winter floods will require additional drainage, cuttings and embankments to make the tracks more resilient. Key operational staff will be sent to a “weather academy” to make them “amateur meteorologists” in order to make better operational decisions.
  • Heat-trapping gases | The National Oceanic and Atmospheric Administration (Noaa) has confirmed that levels of the three most important heat-trapping gases have reached new record levels. Carbon dioxide, methane (which has a significantly greater warming potential, but a shorter lifespan), and nitrous oxide all jumped due to the continued use of fossil fuels, nitrogen fertilisers, and intensification of agriculture.
  • Antarctic temperatures recorded the largest jump in temperature ever measured at a meteorological centre on Earth. Recently published research shows that the region experienced a rise of 38.5C above its seasonal average in 2022.

 

 

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 7,911.16 -0.52 2.19
FTSE 250 19,725.94 -0.80 4.94
Nikkei 38,992.08 -2.93 41.93
CSI 300 3,567.80 1.33 -12.91
S&P 500 5,204.34 -0.95 26.77
Nasdaq 16,248.52 -0.80 34.42
CAC 40 8,061.31 -1.76 10.06
Dax 18,175.04 -1.72 16.52
$ per £ 1.2632 0.00 1.71
€ per £ 1.1652 -0.37 2.37
Gold £/oz 1,843.45 4.36 14.22
Brent Oil $/barrel 91.17 4.22 7.11

Weekly Summary

This month’s PMI data offers some encouragement, ending a six-month period of decline and suggesting that the index will improve further over the coming months. The survey’s underlying messages of weak price growth, marginal job shedding, and improved materials availability are positive.

The warnings contained within the Environment section of this report are significant – especially within construction – and should encourage marshalling support behind the Construction Industry Council’s suggestion that the Government should become a driving force for decarbonisation, outlining the products available and facilitating the necessary skills.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst