After the rain?

Economic Week In Review | Issue 428 | 7 May 2024

UK construction and property

  • Trade survey | The latest survey from the Federation of Master Builders shows that 44% of its members say their business is on track to fall below expected profit margins despite putting up prices. Workloads have increased since the end of 2023, but new enquiries have fallen.
  • Competence | The Construction Leadership Council (CLC) has called for competence frameworks in five retrofit “super-sectors” which would help the industry respond to the impact of climate change. It defines the “super-sectors” as envelope, engineering services, interiors, civils, and structure. The full report is available here.
  • Target Cost Contract | At a launch event last week, a member of the Joint Contracts Tribunal (JCT) announced a new Target Cost Contract (TCC2024) which will be released later this year, saying that it is the first time that target costs have been included in the JCT suite of contracts and they have been developed in response to demand from users.
  • Output | The latest PMI survey by S&P Global showed the construction index increasing to 53.0, driven by commercial work and civil engineering. The survey also highlighted shorter lead times (largely due to relatively soft demand for construction inputs). The commercial sector increased for the first time since August 2023 and was the fastest-growing sector in April 2024 at 53.9.
  • A66 legal challenge | The Transport Action Network campaign group has launched a legal challenge against the A66 TransPennine Road, which was granted a development consent order. The group claims that the £1.5bn project delivers poor value for money, however, National Highways acknowledges this but considers it essential for safety and reliability.
  • Strikes | Union members at Crane Building Services & Utilities have voted overwhelmingly to strike over a pay dispute. The US-owned factory in Hitchen designs and manufactures flow control products for heating, ventilation and air conditioning. They had previously been offered a 5% pay increase.

Materials

  • Asphalt and mortar sales in Britain have fallen to a 10-year low (excluding the Covid period), according to the Mineral Products Association’s survey of its members. It warned that the markets remain subdued and that storms and heavy rainfall have impacted construction productivity in addition to the already difficult economic conditions. Infrastructure schemes have supported the demand for aggregates (particularly for bulk fill along the HS2 line), but a lack of significant new investment or new projects is a key concern.
  • Material sales | The Builders Merchant Building Index shows that sales were 4.7% lower in February 2024 than in 2023. Volumes were 7.5% lower, whilst prices rose 3.1%. Wet weather impacted sales of outdoor products, whilst decorating materials were 6.2% higher in the period.
  • British Steel has received planning permission for an electric arc furnace at its Teeside site. British Steel’s Chinese owner Jingye Group has promised to invest £1.25bn in the site but has asked for subsidies and guarantees from the UK government.
  • Panels | Turkish manufacturer Assan Panel is to build its first UK factory in East Anglia, investing £45m in Freeport East’s Gateway 14. It plans to have the roofing and wall panel plant operational by autumn 2025.

UK economy

  • Base rate | The Bank of England’s Monetary Policy Committee will meet this week, and many expect the group to leave the base rate at 5.25%. In February, many expected interest rates to end the year near 4.2%, but current projections are closer to 4.8%.
  • Retail sales fell at an annual rate of 4% in April, after 3.5% growth in March. The British Retail Consortium has blamed “dismal” weather for the change, in addition to the early Easter weekend.
  • Services | The latest S&P Global UK Services PMI showed the fastest increase in activity and new work for 11 months. The index rose from 53.1 in March to 55.0 in April.
  • Housing | House prices remained flat in April after falling in March, the improvement reportedly due to expectations of mortgage rates starting to fall. The head of mortgages at Halifax was quoted saying the housing market is “finding its feet in an era of higher interest rates” but that buyers are “gaining confidence from a period of relative stability.”
  • Social homes | Design, planning and development consultancy Marrons has warned that England could lose almost 386,000 social houses by 2040 through either purchase or demolition if current trends continue. Of the top 20 local authorities to see significant losses, 13 are in the North.
  • Car targets | At the beginning of the year, the Society of Motor Manufacturers and Traders (SMMT) expected 24% of new cars registered this year to be zero tailpipe emission vehicles, which was in line with the government’s target of 22% (anything below this would mean manufacturers could face a fine). The SMMT now expects demand will be less than 20% and warned that a lack of government incentives is having a marked impact. Overall, car sales figures are falling.
  • General election | Local elections which showed a swing away from the Conservative party have led many to increase calls for the date of the General Election to be announced. Under the fixed-term parliaments act, the latest date for a General Election could be 28th January 2025, with Parliament automatically being dissolved on 17th December 2024.

Global economy

  • Global trade | The OECD, IMF and World Trade Organisations have all forecast a sharp increase in global trade this year after last year’s slowdown. The OECD expects trade in goods and services to rise by 2.3% in 2024 and 3.3% in 2025. China and East Asia are expected to be the big drivers of activity.
  • European Central Bank | Traders are expecting (and reportedly pricing in) a first rate cut since 2019 by the European Central Bank in July. The latest economic data suggests that inflation will return to the 2% target by the middle of next year.
  • China/EU | President Xi is visiting France, calling for closer ties between China and the EU. Xi said that a “strategic collaboration” should promote “stable and healthy development, and contribute to world peace and development.” However, the EU and China are currently locked in a trade war over cheap electric cars, steel, and solar and wind technology.
  • Manufacturing | Global manufacturing PMI fell to a 2-month low but still suggested slight growth at 50.3. Price pressures were reported to have increased, and growth was focused on China, the US, India, and Brazil.

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 8,213.49 0.90 5.59
FTSE 250 20,164.54 1.72 3.66
Nikkei 38,236.07 0.79 31.13
CSI 300 3,604.39 0.56 -10.27
S&P 500 5,127.79 0.55 23.97
Nasdaq 16,156.33 1.43 32.05
CAC 40 7,957.57 -1.62 7.06
Dax 18,001.60 -0.88 12.78
$ per £ 1.2547 0.61 -0.79
€ per £ 1.1650 -0.17 1.56
Gold £/oz 1,834.50 -1.97 14.89
Brent Oil $/barrel 82.83 -7.45 10.00

Weekly Summary

It seems that sentiment is improving, albeit being held back by the UK’s ever-changing weather. Aside from trying to determine which season’s weather will appear, investors and consumers are still coming to terms with interest rates being higher for longer, and looking for any sign that the Bank of England will begin to lower the base rate. If the markets are right, it seems we’ll be waiting a little longer, but sunnier skies are in the distance.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst