Economic Week In Review | Issue 454 | 4 November 2024

UK construction and property

• CSCS cards | The Construction Skills Certification Scheme will change to encourage the upskilling of workers. Labourer cards are currently valid for five years but from 1^st February 2025, they will only be valid for two years and will be renewed if the holder can show they are still in a labouring role. New entrants into the industry will be encouraged to apply for a “red” CSCS card which shows the holder is undertaking training.
• Cladding | A report by the National Audit Office (NAO) has said that the government is on track to miss its 2035 target to remediate dangerous cladding, however work to remove the most dangerous aluminium composite cladding on buildings over 18m was almost complete. Last week’s Budget announced £1bn extra for cladding remediation with a plan to be set out later this year. To date, only 29% of buildings identified as having unsafe cladding have completed remediation work.
• Innovation | Buildots, the company that developed a data-gathering hard hat, has furthered its ideas with an artificial intelligence assistant to answer project status questions. It is powered by OpenAI’s latest GPT models and has been trained in industry-specific terminology to be able to give “instant actionable insights” on project progress.
• Real estate investment | UK commercial real estate investment volumes grew 4% in Q3, boosted by industrial, hotel and residential activity, according to MSCI UK Monthly Property Index. The UK was Europe’s most active market for commercial real estate, exceeding the combined levels of Germany and France. London was the favoured destination, with deals across the first nine months of the year increasing 14% when compared to the same period in 2023. Yet offices in the UK fell to a record low share of deal volumes, reaching the lowest since 2003.
• TFL solar farms | Transport for London is seeking a partner to help it build solar farms to power its underground network. Its ambition is for 5% of its electricity to be from solar developments which are directly connected to its system. TFL intends to enter into private agreements and a dedicated delivery partner, bypassing the National Grid and distribution network operators.

Global economy

• US election | Voting for the US election concludes on Tuesday, and bankers, traders and investors are reportedly bracing for a volatile period until the result becomes known. Surveys and polls suggest that the country is still undecided.
• China | Lawmakers in China have begun a week-long meeting to discuss the economy and are expected to approve China’s largest fiscal package since the pandemic. It is expected that China needs to spend $1.4tn over three years to support its economy which has been slowed by an enduring property slump.

UK economy

• “Greybelt” | The government has been warned that its plan to encourage greybelt development will be a “drop in the ocean” compared to the number of sites needed to address chronic housing shortages. Without a clear definition for the greybelt, land applications for development are expected to become bogged down in legal battles.
• Windfall tax | The Budget announced an increase to the Energy Profit Levy from 35% to 38%, taking the headline tax for producers to 78%. The duty was introduced under the last government and will be extended to 2030. The Budget also announced the removal of the investment allowance that lets companies offset tax from capital that is re-invested.

Materials and commodities

• Material constraints | The Construction Leadership Council (CLC) Material Supply Chain Group warned that suppliers have reduced capacity due to subdued construction activity recently. This includes construction products manufactured in the UK but also materials such as structural timber which is sourced from European suppliers. If demand recovers, this could create a bottleneck in material supply.
• Copper prices | UBS said last week that in the coming 6-12 months the supply of copper could become increasingly tighter as demand grows for the metal which is key for the green energy transition. Copper prices at the London Metal Exchange (LME) are forecast to average $10,500 to $11,000 per metric ton between 2024 to 2026. Supply is expected to see a reduction later this year or early next whilst demand in China, Europe and the US is forecast to improve.
• Oil prices rose amid concerns that Iran was planning a retaliatory strike against Israel. The latest rise has partially reversed the long-term trend of declining oil prices, as the cost of a barrel was $90/barrel in April. The gradual fall was attributed to concerns over global oversupply and reduced demand caused by China’s economic slowdown.

Environment

• Flooding | Spain is enduring its worst disaster in decades after torrential rain triggered a flash flood. One of the first-hit towns in Valencia, Chiva, reported one year’s worth of rain in eight hours according to the national weather agency Aemet. Weather researchers linked the intense rainfall to “gota fria,” a natural weather event that hits Spain in autumn and winter when cold air descends on warmer waters over the Mediterranean. However, the increase in global temperatures has led to the clouds carrying more rain.
• Climate Change Committee | The Department for Environment, Food and Rural Affairs (Defra) and devolved Governments have appointed Professor Hayley Fowler, Professor Chris Evans, and Dr Marina Romanello to the Adaptation Committee of the Climate Change Committee. Their role will be to provide expert advice to the UK, devolved governments, and parliaments on preparing and adapting to climate change. The Adaption Committee comprises experts in climate change impacts, science, environmental economics, conservation, public health and business.
• Coastal Resilience | The Environment Agency has published a mid-programme report for its £200 million Flood and Coastal Innovation Programmes. So far, its achievements include: 97 new natural flood management schemes, 600 new monitoring sensors to measure river levels and provide accurate and timely warnings ahead of flooding and 25 PhD positions funded to train the next generation of flood experts and develop new approaches to the challenges of climate change and extreme weather.

UK Budget

The Autumn Budget, titled Fixing the Foundations to Deliver Change contained a fair amount of positivity for the construction industry, albeit tempered with announcements such as the increase in employers’ contributions to National Insurance levels, which will provide the Treasury almost £24bn a year in total. Clearer certainty will be given to the industry through Phase Two of the Spending Review, which will conclude in Spring 2025.

The Office of Budget Responsibility’s forecast which accompanied the Budget predicts growth of 1.1% in 2024, 2.0% in 2025, 1.8% in 2026, 1.5% in 2027, 1.5% in 2028, and 1.6% in 2029. Its forecast for CPI inflation averaged 2.5% this year, 2.6% in 2025, 2.3% in 2026, 2.1% in 2028 and 2.0% in 2029.

For the construction industry, the Budget announced a variety of projects particularly around infrastructure, including £500m to fix roads and potholes, funds for GB Energy in Aberdeen, announcements for funds for 11 new green hydrogen and carbon capture, new funding for schools, funding for the warm homes plan as well as a £5bn investment for housing to name a few. There was no talk surrounding how the pledge of 1.5 million homes by 2029 was going to be met, or timeframes for when the projects mentioned were going to start, particularly from the record-breaking investments secured from the Investment Summit in October. These questions will hopefully be answered in the Spending Review in Spring.

Amongst other announcements, the Chancellor did not extend the freeze on income tax and National Insurance thresholds beyond 2028, there is set to be an increase in capital gains tax, a freeze on fuel duty, an increase in windfall tax and a rise in minimum wage.