Planning for growth

Economic Week In Review | Issue 441 | 5 August 2024

UK construction and property

  • Leasing | Savills reported that office lettings in London have increased notably in Q2 2024 and take-up has reached 2.3m sqft. Whilst it was a 21% increase from Q1, it remains 7% below the long-term average. The agent says that the lower levels are due to the impact of hybrid working.
  • New Towns | A new task force has been set up to identify sites for new towns of more than 10,000 new homes. It will be chaired by Birmingham City Council chief executive Sir Michael Lyons, supported by economist Dame Kate Barker. The new towns will be a combination of new large-scale communities which are separate from existing settlements. Still, most will be extensions and regeneration schemes, and the target will be 40% affordable homes. Recommendations will be made to ministers within 12 months.
  • UK growth | The RICS Construction Growth Monitor showed no growth in activity between Q1 and Q2 2024, with the activity index balancing at 0. Whilst this doesn’t seem encouraging, it is a marked improvement on the negative figures seen throughout a lot of 2023. Infrastructure is still the strongest sector, with a net balance of +13. Financial constraints, and planning and regulatory constraints were key concerns.
  • Housebuilding | Changes have been made to how housebuilding targets are set, and the new method will set the national target at 370,000 homes per year.

Global economy

  • Global construction | The latest RICS Global Construction Monitor suggests a modest expansion with the headline Construction Activity Index posted a reading of +15 for a consecutive quarter. The Middle East and Africa, and the Americas reported the strongest growth.
  • US labour | The jobs market in the US cooled more than expected, adding 114,000 jobs and unemployment rose. Many expect this will increase pressure on the Federal Reserve to lower interest rates at its meeting in September.
  • US/EU relations | The EU is assessing the impact on trade with the bloc is Donald Trump returns to power as his economic plan suggests higher tariffs in goods imported to the US.
  • “Excess savings” | Stimulus during Covid allowed households in the US to accumulate “excess savings” far above the pre-recession trend, collectively saving $2.1tn more than they usually would according to the Federal Reserve. However, the latest figures show this excess has been “fully depleted”.
  • Japan | The Bank of Japan has unexpectedly increased interest rates from between 0% and 0.1% to 0.25%, its second rate this year. A rate increase was unexpected as real wage growth is expected to turn positive this month, after inflation has outpaced wage growth for the last two years, negatively impacting spending.
  • China’s factory activity fell for a third consecutive month as the country continues to struggle with low domestic consumption and a weak property market.
  • Middle East unrest | Concerns have been raised over an escalation in the crisis in the Middle East after Hamas’ leader was killed in an airstrike in Tehran.

UK economy

  • Base rate | The Bank of England lowered interest rates by 25 basis points in a closely contested 5-4 vote.
  • Public sector pay | The Bank of England said planned pay awards of between 5% and 6% would have a relatively small impact on overall inflation.
  • Trading relationships | The EU has issued the UK with a list of demands that must be satisfied to develop a better relationship. The list includes removing the need for EU citizens living in the UK to apply for “settled status” after completing the required five years of living in the UK.
  • Education insolvencies | The university regulator announced a tender for professional services companies to manage a wave of insolvencies in the sector as it faces a funding crisis. Consultants will examine whether universities which are “at material risk of market exit” can be rescued through a “transformation plan”.
  • UK unrest | Violent disorder broke out in several areas of England over the weekend. The government has scheduled a Cobra meeting. Many have called for Parliament to be recalled to discuss a response.
  • International investment | Chancellor Rachel Reeves will take a three-day visit to New York and Toronto this week, encouraging investors to see Britain as “a stable place to do business” ahead of an international investment summit which will be hosted in mid-October by Kier Starmer.

Materials and commodities

  • Brick prices | Forterra has said that “selling prices remain relatively stable” because of market competition, suggesting that the market has not accepted its most recent round of price increases.
  • Builders merchant sales | The latest Builders Merchant Building Index shows that sales volumes are 7% lower in May 2024 compared to a year earlier, and takings are 5.2% lower. Whilst construction output is recovering, the growth in new build and residential repair and maintenance is yet to feed through to merchants.
  • Heavy material sales | The Mineral Products Association reported modest improvement in the sales of aggregates and asphalt, but concrete sales are still low. It suggests stabilisation in key construction markets after sales fell to their lowest level in a decade in Q1. Infrastructure projects are reportedly the cause of the uptick.
  • Commodity fall | Copper has seen a market sell-off with prices 20% lower than its May 2024 high. Aluminium, lead, and tin have all fallen as traders’ expectations of a recovery in China have diminished.

Environment

  • Renewable energy auction | The government has announced a significant increase in the budget for this year’s renewable energy auction by £500m to £1.5bn with the majority of funding available for offshore wind power. Last year, developers did not bid for any offshore wind contracts as the prices were too low to ensure viability.
  • Record temperatures | The world broke climate records twice in one week with average surface temperatures rising to 17.15C, higher than the previous record of 17.09C. The record was last set in 2023. Heatwaves are being seen in the Mediterranean, Russia, and Canada.

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 8,174.71 -1.34 8.07
FTSE 250 20,826.35 -2.48 9.99
Nikkei 35,909.70 -4.67 11.55
CSI 300 3,384.39 -0.73 -15.82
S&P 500 5,346.56 -2.06 19.40
Nasdaq 16,776.16 -3.35 20.61
CAC 40 7,251.80 -3.54 -0.86
Dax 17,661.22 -4.11 10.72
$ per £ 1.2798 -0.50 0.19
€ per £ 1.1726 -1.01 1.30
Gold £/oz 1,907.96 2.84 25.20
Brent Oil $/barrel 76.81 -5.32 -10.93

Weekly Summary

Housing targets and planning have been a key piece of the new government’s announcements with a review of the National Planning Policy Framework and the New Towns initiative; however, these more long-term positive announcements may be overshadowed by the immediate cancellation or review of some large-scale infrastructure projects.

The industry remains at a turning point, and may do for some time as decisions made today may not have an impact for some months yet.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst

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