Economic Week In Review | Issue 447 | 16 September 2024

UK construction and property

• Output | Total output in the construction industry fell by 0.4% in July, after falls in June and May. Both new work and repair and maintenance work fell. The main contributors to the fall were private commercial new work and private housing repair and maintenance, which fell by 2.4% and 1.7% respectively.
• Data centres are to be designated as critical national infrastructure (CNI), putting them on a par with energy and water systems. A dedicated CNI data infrastructure team will monitor potential threats and coordinate priority access to government security agencies. It comes after a ransomware attack limited access to patient information and Crowdstrike issues earlier this year. In related news, the Treasury announced that Amazon Web Services will invest £8bn over five years, supporting 14,000 jobs, and contributing £14bn to the UK’s GDP from 2024 and 2028.
• Empty stores | A survey by Green Street for PwC has revealed that there are almost 2,300 more empty stores in the UK than at the end of 2023. Chain stores have been closing at a net rate of 12 a day. ­
• Low-carbon homes can save £1,341 in utility bills according to a study by MCS Foundation – a charity which campaigns for renewable energy to be central to the 2025 Building Standards for new homes. The study modelled a standard new home with solar panels, a heat pump, high-grade insulation and battery storage.
• Infrastructure | Labour’s plans to merge the National Infrastructure Commission (NIC) with the Infrastructure and Projects Authority took a step further last week with a launch event in Westminster. The Chief Secretary to the Treasury claimed that the NIC had not been taken seriously by the previous government, but “[it] was doing a brilliant job on strategy”.
• HS2 alternative | A private sector consortium led by Arup, and commissioned by the Mayors of Greater Manchester and the West Midlands has set out a plan for 80km of new rail links called the Midlands-Northwest Rail Link. Its report states that the private sector must play a role in financing the scheme.
• Hotels | According to a report by Cushman and Wakefield, London saw a strong increase in hotel investment, with total European hotel deals at their highest level in five years in the first half of the year.
• Grey belt | Peers will examine Labour’s rules on developing the green belt, and the House of Lords Environmental Committee wants to answer several questions surrounding the definition of “grey belt”. Under the new National Planning Policy Framework (NPPF) councils that need to meet housing demand should undertake a green belt and look to release poor quality land from the green belt which ministers have termed ‘grey belt’ land.

Global economy

• ECB Rates | The European Central Bank lowered borrowing costs in the Eurozone for the second time this year. The bank is confident that inflation will drop to its target of 2% in 2025, which was 2.2% in August but is expected to increase in the latter part of the year. It also trimmed its expectations for economic growth this year from 0.9% to 0.8%.
• US inflation | CPI rose at an annual rate of 2.5% in August down from 2.9% in July and below the expected 2.6% by economists as inflation continues to fade. Price increases have softened in the US last month falling to the lowest level since 2021 as the Federal Reserve prepares to cut interest rates for the first time since the start of the pandemic. 

UK economy

• Travel permits | From next year travellers to the UK from more than 40 countries including the EU, US, and Hong Kong will have to apply for a £10 travel permit. The electronic travel authorisation (ETA) scheme is similar to the US ESTA programme. It has already been trialled with people travelling from seven countries in the Middle East.
• Excess cash | A report by Barclays claims that 13 million adults in the UK have a combined £430bn of savings in cash, missing out on investment returns.
• Public debt is expected to almost triple by the mid-2070s to more than 270% of GDP, according to the Office for Budget Responsibility. It says that debt levels have increased in all developed economies because of competing demands on the public purse due to frequent global shocks.
• Flatlining economy | According to the ONS, The UK saw no growth for the second month in a row. Economists had anticipated growth of 0.2%. Due to the strength of the service sector, there was 0.5% growth over the three months leading up to July. While there was growth in the service sector led by computer programmers and the end of health strikes, these gains were offset by falls for advertising companies, engineers, architects, and manufacturing output which could explain the stagnation within the economy.

Materials and commodities

• Tata Steel | The UK government confirmed a £500m subsidy to help build an electric arc furnace in Port Talbot. Approximately 2,500 workers will be made redundant (with at least a £20,000 redundancy package) as electric arc furnaces require fewer workers. The current steel plant is the UK’s single biggest source of CO₂, and its closure will lower the UK’s CO2 emissions by 1.5%. In 2023, the UK emitted a total of 383m tonnes of CO₂.
• Aluminium | After falling to a near six-month low, driven by concerns over demand from China and uncertainty over the timings of interest rate cuts, the aluminium market has reversed its course and climbed to a near one-month high. This could be due to expected US interest rate cuts and China’s economic stimulus measures. Supply-side shocks such as the tight supply of raw materials mainly alumina and bauxite have raised the price of aluminium. The weakening of the dollar has also made it cheaper for buyers to buy aluminium using different currencies, stimulating demand.
• Russian exports | Vladimir Putin has suggested restrictions on key commodities such as uranium, titanium, and nickel in retaliation to Western sanctions. This caused a prompt increase in nickel prices and increased uranium mining company shares. He warned that restrictions could be placed on other commodities such as natural gas (Russia accounts for 22% of global reserves), gold, and diamonds. Western countries have sharply cut the purchase of Russian oil and gas since the start of the war in Ukraine, Russia remains a major supplier of metals to the global market, so restrictions on exports could cause disruptions.
• Iron ore | Iron ore prices sank below $90 a ton for the first time since 2022 due to the tepid Chinese market. Futures for iron ore have fallen by over a third this year due to an unresolved steel crisis in China, reducing demand for iron ore, the main steel component.

• Global carbon pricing | The Chief of the World Trade Organisation (WTO) has said that the world needs a joined-up, international carbon pricing system and the WTO, IMF, OECD, and the UN are developing one. They claim that without one, there will be “difficult and problematic” disputes, such as those expected from the EU’s carbon border adjustment mechanism which came into effect this year.
• Ecocide | The International Criminal Court (ICC) is considering whether people or organisations who destroy the environment should be categorised as criminals under international law. The crime of ecocide was introduced for consideration by ICC member states on Monday 9th of September.
• OSCE Forum | The UK’s Ambassador Holland addressed the opening session of the 2024 OSCE (Organisation for Security and Co-operation in Europe) economic and environmental forum stating that sustainable development and climate adaptation are two casualties of Russia’s war. This is supported by Chatham House’s 2023 report stating the risk of war putting climate action on the back burner. The UK has been supporting the OSCE’s project on assessing the environmental damage of Russia’s war in Ukraine.