Turbulent, tepid, or transformational?

Economic Week In Review | Issue 425 | 15 April 2024

UK construction and property

  • Output | Total construction output fell 1.9% between January and February with decreases in both new work (2.3%) and repair and maintenance (1.4%) with anecdotal evidence suggesting that heavy rainfall was the main reason. On an annual basis, output was largely unchanged with growth of 0.1%. All work, however, fell by 7.8% with new private housing and new industrial contributing to the fall. Commercial output fell by 6.4% in the year.
  • Hospital buildings | Analysis of NHS Digital data by the Liberal Democrats has found that more than 2,000 NHS buildings are older than the service and the maintenance backlog has increased to £11.6bn.
  • Supply chain debt | The total owed to creditors after the demise of Buckingham Group has doubled to £256m. In September 2023, the company’s directors disclosed that there were 1,292 unsecured creditors owed £113m. The new higher figure includes significant claims from sureties providers.
  • Skills cards | The Construction Industry Council has issued a statement to clarify that architects and consultant engineers are not required to have CSCS cards. Membership of a recognised professional body and adequate evidence of health and safety knowledge is sufficient. The full note is available here.
  • Grenfell Tower | The final report from the Grenfell Tower Inquiry has been delayed for a third time. Its planned release had been before the 14th of June, the seventh anniversary of the fire. The panel said that the rule 13 process – which requires notifying those that are subject to criticism and considering their responses – “was proving time-consuming” and the reason for the delay.
  • Second staircase guidance | The recently published design guidance has been welcomed by the London Fire Brigade, but it also said that fire safety measures should look at measures beyond the number of staircases, adding that there should be “equal consideration for the escape of all building users through the use of suitably protected evacuation lifts.”
  • Credit insurance | The Construction Leadership Council, together with the Builders Merchants Federation is attempting to understand the issues in the credit insurance market after reports that insurers have pulled trade insurance cover on leading contractors. It has launched a Trade Credit Insurance Survey to gather information on the current levels of provision.

Materials and commodities

  • Trade deficit | The trade deficit of construction materials – the difference between the UK’s exports and imports – has fallen by 14% in the last year. However, it is almost five times higher than the target set in 2013 as part of the Government’s Construction 2025 plan.
  • Bricks | Ibstock has launched the next stage of investment at its factory in West Yorkshire. Phase One focussed on driving pace and scale of brick slips through automation and Phase Two will expand the product range from 2025.

UK economy

  • Thames Water has been given six weeks to agree a turnaround strategy with Ofwat. The company claims it has cash reserves to last 15 months. Its holding company, Kemble Water Finance admitted that it will not be able to repay a £190m loan due at the end of April.
  • Mortgage demand has increased in the first quarter of 2024, with many suggesting that it means the market has stabilised.
  • Forecast concerns | A review by the former head of the US central bank into the Bank of England’s forecasting system has found “serious deficiencies” that need to be modernised. A serious under-investment in the Bank’s software is holding staff back from producing useful analysis as they are using a “complicated and unwieldy system.”
  • Inflation | An update on the UK’s rate of consumer price inflation will be released this week and many expect it to have eased further, showing that inflation is slowing at a faster rate than the US and that the Bank of England may move the base rate down.

Global economy

  • US Inflation | Increased rent and transportation costs led to an increase in the US core consumer price index (which excludes food and fuel). The index rose 0.4% from February. Many analysts expect the news to limit any chance of a June cut to base rates.
  • Growth strategy | Janet Yellen, Chair of the US Treasury, together with Germany’s Olaf Scholz, suggested that China fundamentally rethinks its strategy for economic growth as imbalances and subsidies will lead to significant overcapacity and risks for the rest of the world.
  • China’s property crisis | Real estate company Shimano Group has been given a winding-up petition after it failed to repay loans worth £159.7m. Its shares have lost a third of their value since the start of the year. The petition was placed by state-owned China Construction Bank (Asia). Additionally, research by Goldman Sachs Group Inc. has found that private developers in China face a $553bn funding gap to complete pre-sold homes. It added, “The housing sector has not yet reached the bottom of the L-shaped path we expect.”
  • IMF forecast | The Managing Director of the International Monetary Fund has warned that the world faces a decade of “tepid growth” and “popular discontent”, saying that “the sobering reality is global activity is weak by historical standards and prospects for growth have been slowing since the global financial crisis.”
  • Singapore | After being in power for almost 20 years, Singapore’s Prime Minister will step down. It will be the third transition of power in the city-state’s modern history.
  • Scaled-down Line | Saudi Arabia has reportedly scaled back its plans for the 170km long city. It will now house 300,000 people by 2030, rather than 1.5 million with 2.4km completed by 2030.

Election tracking

  • Industry needs | The Federation of Master Builders has produced a “manifesto” which outlines the policies it will be looking out for at the next General Election. Amongst its key asks is for a dedicated secretary of state for housing. It also details a strategy to retrofit the UK’s homes with incentives such as VAT-free work on Repair and Maintenance work.

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 7,995.58 1.07 1.57
FTSE 250 19,721.24 -0.02 2.49
Nikkei 39,523.55 1.36 38.71
CSI 300 3,475.84 -2.58 -15.06
S&P 500 5,123.41 -1.56 23.82
Nasdaq 16,175.09 -0.45 33.42
CAC 40 8,073.45 0.15 7.37
Dax 17,930.32 -1.35 13.43
$ per £ 1.2457 -1.39 0.33
€ per £ 1.1699 0.40 3.44
Gold £/oz 1,883.03 2.15 16.64
Brent Oil $/barrel 90.45 -0.79 4.80

Weekly Summary

Investor confidence and the economic outlook for the year feels predicated on a loosening of fiscal policy, a feeling echoed in the speech by the Managing Director of the IMF which warned that the 2020s could be turbulent, tepid, or transformational. Therefore, this week’s CPI data release for the UK will be important in determining the outcome of the next Bank of England rate decision.

February’s construction output data is a stark reminder that whilst sentiment is improving and suggestions that future pipelines may expand, the current market is still challenged, looking for encouragement from policy and the economic backdrop.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst