Into 2025...

Economic Week In Review | Issue 460 | 16 December 2024

UK construction and property

  • Planning reforms | The government released an update to the National Planning Policy Framework (NPPF). It includes a range of changes highlighted in the summer’s draft version, including the return of mandatory targets and a new method to calculate them, which resulted in a 370,000-home national target. Furthermore, the NPPF framework has outlined a proper definition for the meaning of grey belt land. The changes are hoped to spearhead the government’s goal of building 1.5 million homes during its parliament.  
  •  Planning approvals | Deputy Prime Minster Angela Rayner has announced plans to allow planning officers to approve applications without the permission of councillor committees if they comply with local plans and the National Planning Policy Framework (NPPF). 
  • Builders merchants | The chief executive of the Builders Merchant Federation, John Newcomb, warned that the proposed changes to business property relief (BPR) could force leading merchants to cut their staff numbers and limit investment plans, threatening the government’s plan to build 1.5 million homes during the current parliamentary term. From April 2026, a £1 million cap will be set for assets eligible for 100% BPR relief. Assets above this threshold will have a reduced 50% relief.   
  • MEP workload growth | Rising costs in the M&E sector this summer led to the smallest quarterly rise (0.9% in the three months to September 2024) of tender growth since the first quarter of 2021, according to a survey by leading framework provider Southern Construction Framework (SCF). Survey respondents said this was due to the rising price of copper and spiking labour costs which affected the M&E sector.  
  • Profits | Annual research published by Building magazine has shown average profit made by the largest housebuilders in the industry has dropped 36% year-on-year. The data also shows housebuilding turnover is down 8% year-on-year. The overall drop in pre-tax profit for the Top 150 Contractors and Housebuilders was 31%.  
  • Skills scrapped | Onsite T levels have been scrapped by the government, which cited insufficient demand for the qualification.
    Output | The latest data from the ONS shows that construction output fell by 0.4% in October, following an increase of 0.1% in September. The largest contributor to growth in new work was infrastructure, which grew by 3% in the three months to October.
  • Commercial investment in real estate is expected to exceed 2024 volumes next year, growing to between £45bn and £50bn, according to Colliers. The increase will be supported if interest rates stabilise, yield compression as gilt yields stabilise, causing stronger returns. It expects commercial property returns to reach 11%.

Global economy

  • Germany | According to the Kiel Institute for the World Economy (IfW), economic growth in Germany is likely to shrink by 0.2% this year before flatlining next year. This is due to the German economy struggling with lower competitiveness and a sluggish overall economic performance. The IfW expects the crisis to worsen as German industry may be hit with tariffs following Donald Trump’s victory in the US presidential election. This downturn has reached the labour market with the IfW expecting unemployment rates to rise to 6.3%, up from 6% in the current year.  
  • European interest rates | The ECB has cut interest rates for the fourth time this year as growth has been affected by recent political instability at home, as well as the risk of a fresh trade war with the United States. The ECB has lowered its deposit rate to 3% from 3.25%, hinting at further rate cuts in 2025.  
  • China | For the first time in 14 years China will adopt a loose monetary policy next year to tray and reinvigorate its economy. China will focus on expanding domestic demand and boosting consumption. The central bank has outlined five policy stances – “loose”, “appropriately loose”, “prudent”, “appropriately tight”, and “tight” – with flexibility on either side of each. China may be able to reach its growth target of 5% this year but maintaining that pace into 2025 may become a problem with U.S. President-elect Donald Trump returning to the White House having threatened tariffs of 60% or more on Chinese imports. 

UK economy

  • UK manufacturing | According to Make UK, manufacturers’ confidence in the UK economy fell after the Budget at the sharpest rate since the pandemic as they struggle to balance a background of cost creep against the increasing cost of employment.
  • Inflation data | Economists at Cardiff University have suggested that time lags in the weighting of data around energy costs, and recent volatile energy pricing could be affecting the accuracy of the UK’s inflation figures. Consumer Price Inflation recently increased from 1.7% to 2.3% in October due to higher energy bills, a further increase to 2.6% is expected to be announced in November’s inflation figures which are released this week.

Materials, commodities and currencies

  • Exchange rates |Last week the pound hit its highest level against the Euro for more than two-and-a-half years. The pound rose as high as €1.2136 – just shy of the €1.2189 it reached in March 2022. It has not been higher than that since the Brexit vote in 2016. It came as investors expects the ECB to cut rates in a bid to kick-start the eurozone economy.  
  • Steel | Ministers are reported to be considering renationalising British Steel in an effort to save jobs as talks with Chinese owners Jingye remain locked, however, Whitehall officials have said that it is “the least attractive option”.

Environment

  • Global warming | The National Oceanic and Atmospheric Administration (NOAA) said the Earth will chart its hottest year in 2024. Though the full-year data is not complete, the NOAA said 2024 has a greater than 99% chance of beating last year’s mark. Globally, temperatures were 1.28 degrees Celsius above the 20th century average from January through November with every continent experiencing its warmest year on record – except Asia, which recorded its second-warmest year.  
  • Renewables | The government has pledged to produce almost all its electricity from renewables by 2030 in a bid to stabilise energy prices. With this new plan, the Labour government wants to prioritise ready-to-go projects that are in line for meeting the 2030 target while removing speculative or stalled proposals from the queue. The Planning and Infrastructure Bill will streamline approvals for critical energy projects like wind farms and battery storage facilities.  
  • Gas use | Britain’s electricity grid burnt a record amount of gas on Thursday last week, surging to 70% of the country’s energy mix after a “dunkelflaute” weather event (dark lull) lowered renewable output to just 6%. According to experts, these conditions (which are characterised by persistent low winds and overcast skies) pose the biggest challenge to the electricity grid as it becomes increasingly dependent on renewables. On Thursday it sent prices skyrocketing with the National Energy System Operator (Neso) trying to match supply and demand. Elsewhere in Europe, countries such as Germany saw costs rise even further.  

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 8,300.33 -0.10 9.56
FTSE 250 20,889.15 -0.81 8.75
Nikkei 39,470.44 0.97 19.71
CSI 300 3,933.18 -1.01 17.71
S&P 500 6,051.09 -0.64 28.22
Nasdaq 19,926.72 0.34 34.51
CAC 40 7,409.57 -0.23 -2.47
Dax 20,405.92 0.10 21.54
$ per £ 1.2626 -0.92 -0.65
€ per £ 1.2027 -0.30 3.22
Gold £/oz 2,098.50 1.54 31.75
Brent Oil $/barrel 74.49 4.74 -2.69

Weekly Summary

As the year draws to a close, many have turned their thoughts to what the coming year may look like. With the trajectory of inflation and interest rates still under question, it’s encouraging to see forecasts of increasing investment for next year.

However, concerns are growing over the construction sector’s ability to deliver a growing pipeline of work – particularly the government’s target of 1.5 million homes – with a much-diminished workforce. We expect labour, training, and productivity to dominate discussions next year.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst
Kishan Patel
Kishan Patel,
Research Analyst

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