On the horizon

Economic Week In Review | Issue 436 | 1 July 2024

UK construction and property

  • Bond release | Bond broker DRS Bond Management has encouraged that bonds should be released and rewritten to cover the smaller balance of extra work required where client variations take project work above contract values to free up capacity in the market. It warned that a shortage of capacity is threatening to delay project starts. The market has been affected by the recent withdrawal of six large providers.
  • AI playbook | The Chartered Institute of Building (CIOB)) has produced a playbook for Artificial Intelligence for organisations of all sizes seeking to make the best use of AI. The guide covered ways to evaluate effectiveness, ethics, security, and data protection.
  • Planning permissions | In its inaugural report, the Planning Portal Application Index has found that one in three planning permissions have not been built out since 2015. If all approved homes had been delivered, the government’s target of 300,000 new homes a year would have been achieved in eight of the last ten years.
  • Five-year forecast | The latest projection from the Building Cost Information Service (BCIS) suggests that building costs will increase by 15% over the next five years, and tender prices by 19%. It expects construction output to fall by 5.5% in 2024 compared to last year. However, it forecasts growth to return in the second half of 2025.
  • Project starts | Glenigan expects project starts to increase by 3% this year, followed by increases of 7% and 6% in the following years. The rebound will be led by hotel and leisure work this year, with private housing and offices increasing by 14% and 12% respectively in 2025. A recovery in consumer spending will encourage growth of 20% in the retail sector in 2026. It expects public spending to improve after the election.
  • Water infrastructure | Thames Water warned that ageing assets are a risk to public safety, water supply and the environment, adding that £19bn of assets are in “poor” or “failed condition” or are “no longer capable of reliably performing their function”, and the four London water processing plants require upgrades.

Global economy

  • US offices | Moody’s expects almost a quarter of all US office space to be vacant by 2026. The vacancy rate at the beginning of 2024 was 19.8%
  • China | Factory activity fell for a consecutive month in June and services output fell to a five-month low according to the National Bureau of Statistics purchasing managers’ index. Debate exists as to whether the official figures accurately pick up the value of exports which have been driving China’s economy.
  • France | Marine Le Pen’s National Rally party is leading in the first round of the French election, with 33% of the national popular vote.  Left-wing party New Popular Front received 28% of the vote and Ensemble Alliance (Macron’s centrist group) came third with 22.5%. A second round of voting will take place on 7th July. The result caused the Cac-40 index to bounce (but it remains 4% lower than when the snap election was called), and French bonds have outperformed German peers.

UK economy

  • Skills | Despite it playing an ever-increasing roll in the modern world of work, the number of girls in England taking a computing GCSE has more than halved in eight years. The research from King’s College London warns that the decline could lead to “heightened vulnerabilities and the dominance of men in shaping the modern world”.
  • Eggshells | The director general of the British Chamber of Commerce has said that the country must stop “walking on eggshells” when talking about closer ties with the EU and that the next government must improve trading relations to grow the UK’s economy.
  • Global risk rating | Allianz Trade has improved its view of the UK’s risk rating, saying it is now one of the 15 countries which are seen as a less risky place to do business following stronger macro-economic figures.
  • House prices are expected to increase by the end of 2024. Zoopla’s current index shows that UK house prices are currently “over-valued” by 8% and are expected to return to a “fair value” by the end of the year as incomes are expected to improve.
  • Recovery | EY ITEM Club has suggested that the UK could enjoy a consumer-led recovery and expects GDP to have grown at a decent pace in Q2 with early signs showing in the Purchasing Managers’ Index. Growth will be encouraged by low inflation and “persistently strong pay growth”.
  • Living standards | Data released by the Resolution Foundation this week shows that real per capita household disposable incomes are currently lower than they were before the pandemic despite the improvement in Q1 2024.
  • Foreign investor appetite | Data from the Department for Business and Trade shows that the number of Foreign Direct Investment Projects in Britain has fallen to a near 12-year low. Software and computer services remained the strongest sector but saw the largest year-on-year fall of 31%.
  • Bonuses | Investment bankers in the City of London are expected to see increased bonuses this year, having recovered from a two-year lull in deals caused by increasing interest rates. Recruitment firms have said that the outlook for 2024 is “thawing” after a two-year freeze.
  • Energy | From 1st July a new energy price cap applies to domestic bills. The average home should see bills fall by £122 a year, to £1,568.

Materials and commodities

  • Tata Steel will close its Port Talbot plant early due to strike action. The plant was scheduled to close one furnace at the end of June and the other by September to replace them with electric arc furnaces, however, strikes by members of Unite have encouraged the owners to cease operations by the 7th July. A spokesperson has said that the period of strike action would not allow them to safely operate assets in a stable fashion.
  • Copper | The Chilean Copper Commission (Cochilco) has said that its ageing mines will require more water and energy over the next decade to maintain their output levels due to a drop in the copper ore grades. Many of the mines operate in the arid Atacama Desert so they will increasingly rely on energy-intensive desalination plants.
  • Red Sea | A bulk carrier was attacked in the Red Sea in a continuation of the threat to the area.

Environment

  • Bleaching | Recent high-resolution drone footage shows that “most of” the Great Barrier Reef is dead as it suffered one of its worst bleaching events ever this summer.
  • Hurricanes | The Caribbean is preparing for Hurricane Beryl, which strengthened to a category 4 storm in just 42 hours (which has only been seen six other times in the history of hurricanes in the Atlantic). It is now the earliest category 4 hurricane on record.

General Election

Ahead of this week’s General Election we have compiled a summary of the key points relevant to the London construction market.

With a potential change in government likely, it is encouraging to see that the main parties remain committed to the New Hospitals Programme and have introduced new ideas, such as a ten-year infrastructure strategy and investing in the improvement of a significant number of homes. The establishment of Skills England is set to play a crucial role in unlocking future growth, but the construction industry needs to engage and drive opportunities for skills development.

For a more detailed analysis, read the full summary here: bit.ly/4bnNdio

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 8,164.12 -0.89 8.40
FTSE 250 20,286.03 -0.76 10.15
Nikkei 39,583.08 2.56 19.27
CSI 300 3,461.66 -0.97 -9.91
S&P 500 5,460.48 -0.08 22.70
Nasdaq 17,732.60 0.24 28.61
CAC 40 7,479.40 -1.96 1.07
Dax 18,235.45 0.40 12.93
$ per £ 1.2637 -0.04 -0.56
€ per £ 1.1798 -0.20 1.36
Gold £/oz 1,839.99 0.20 21.72
Brent Oil $/barrel 86.41 2.47 15.37

Weekly Summary

Sentiment is increasingly suggesting a rebound in economic activity within the coming 18 months, but sources are yet to agree on when this could be, possibly due to the continually high interest rates and the impact of this week’s General Election.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst