How do we move forward?

Economic Week In Review | Issue 470 | 10 March 2025

UK construction and property

  • Declining workloads | SME construction companies suffered a second successive quarter of declining workloads and enquires according to the Federation of Master Builders’ (FMB) latest State of Trade Survey.
  • Retrofitting social housing | The National Wealth Fund (NWF) announced an initial £150m financial guarantee to support the retrofitting of social housing. The fund will support The Housing Financing Corporation (THFC) to help registered social housing providers retrofit their stock with sustainable/low carbon solutions. THFC and the NWF hope to expand the scheme to £250m over the next six-months depending on take-up.
  • Safety delays | The chair of the Construction Leadership Council (CLC) has warned MPs that project delays in receiving safety regulator approvals are now one of the three major blockers to meeting the Government’s housebuilding targets. Gateway 2 approvals should take 12 weeks for a new project, and 8 for an existing one, but projects are generally seeing 24-28 weeks, and some as much as 40-48 weeks.
  • Project starts in the leisure and office sectors have dipped as the construction sector waits for clarity on spending, according to Glenigan. Uncertainty around public spending on infrastructure and housing has also slowed activity across the UK. In the three months to February site starts were down by 6%. They were also 17% lower on a year-by-year basis – with the housing, engineering and leisure sectors affected.
  • Department for Education spending | The DfE is set to unveil a new £15.4bn construction framework, which is planned to run for six years, from December 2025 to December 2031, with possible two-year extension period. The new programme will replace the existing four-year CF21, which is set to expire in November 2025.
  • Construction activity fall | The latest S&P construction PMI survey fell to 44.6 down from the 48.1 recorded in January and below the neutral 50 mark. The sharp downturn marked the lowest activity level since May 2020. Residential construction was the weakest-performing sector, with an index reading of 39.3 in February compared with 44.9 the month before. The S&P said this was the fifth consecutive month of decline in this sector and the sharpest contraction since early 2009, excluding the pandemic. Weak demand, elevated borrowing costs and a lack of new work to replace completed projects were the main factors behind the slump.
  • Insolvencies | More than three times as many construction firms went into insolvency in February than in January. The February total of 32 administration reverses a recent downwards trend that saw the casualty list halve in December and fall to just 10 firms in January. The figures for the second month of 2025 are the highest monthly toll since November 2023, when 33 firms went under.
  • School leaving age | The Scottish Conservatives have proposed to lower the age at which children can leave school, from 16 to 14 to allow people to get a head start on apprenticeships. The Plumbing and Heating Federation has called the proposals “reckless, unworkable, and deeply irresponsible”. (The Plumbing and Heating Federation is the new name for Scottish & Northern Ireland Plumbing Employers’ Federation).

Global economy

  • German manufacturing sector shows sign of recovery in February, with the downturn easing to its slowest pace in over two years. Germany’s manufacturing PMI rose to 45.6 last month from January’s 45.0, marking its highest level since January 2023, although remaining below the 50.0 threshold indicating growth. The survey revealed modest declines in output, new orders and export sales with the smallest drop in new orders since April 2022. However, employment fell sharply accelerating to the fastest in three months. Despite a more positive outlook for future output, business optimism weakened slightly from January, amid concerns over geopolitical tensions and tariffs.
  • Germany’s defence spending | Germany has planned a substantial increase in defence and infrastructure spending having agreed a plan to create a $500 billion euro infrastructure fund and to overhaul the country’s long-standing ‘debt brake’ that caps borrowing. Germany’s strict cap on borrowing known as the ‘debt break’ would be amended in the constitution to exempt defence expenditure above 1% of economic output. This in effect would mean no upper limit on larger defence spending plans.
  • Inflation in Europe eased to an annual 2.4% in February, supporting the case for a further interest rate cut from the ECB. The February figure was lower than the 2.5% seen in January as energy inflation dwindled, and major economy France saw a rate of only 0.9%. The lower CPI figure supported the view that the ECB is succeeding in its battle to get inflation back to its target of 2%. This has led to the bank’s rate-setting council to cutting its benchmark rate by a quarter point to 2.5% on Thursday.
  • China’s stimulus | China unlocked more fiscal stimulus last week, signalling greater efforts to boost consumption to ring-fence the economy’s path towards this year’s 5% growth target amid an escalating trade war with the United States. Boosting consumption has been elevated to the top priority for the first time, displacing technology from its usual leading position. Beijing plans to issue 1.3 trillion yuan ($179bn) in ultra-long special treasury bonds this year, up from 1 trillion yuan in 2024. Local governments will be allowed to issue 4.4 trillion yuan in special debt, up from 3.9 trillion yuan with Beijing planning to issue special debt of 500 billion yuan to re-capitalise major state banks. As well as these pledges, 300 billion yuan will support a recently expanded consumer subsidy scheme for electric vehicles, appliances and other goods to address the supply-demand gap. China’s household spending is less than 40% of annual economic output, some 20% points below the global average. Investment, by comparison, is 20% above.
  • Tariffs | President Trump announced that most goods imported from Mexico and some from Canada are to be exempt from his trade tariff regime for at least four weeks, just days after the charges were imposed. The White House said that 62% of Canadian imports would still be subject to 25% tariffs because they were not compliant with a trade deal – USMCA (US, Mexico and Canada)- struck in 2020. Donald Trump is also planning to exclude carmakers across North America from the pain of US tariffs, for a month, levelled against Mexico and Canada following pressure from motor bosses.
  • Canada’s leadership | Former Governor of the Bank of England, Mark Carney, has won the contest to lead the Liberal Party of Canada and succeed Justin Trudeau as Prime Minister. He is expected to call a national election soon after taking the position.

UK economy

  • UK Defence spending | The Chancellor is to change the remit of the £27.8 billion National Wealth Fund so it can be spent on defence. Previously, investment has been focused on infrastructure projects such as green energy schemes. Last week the Chancellor signed a multi-billion-pound UK-Ukraine bilateral loan agreement, marking the first time money from sanctioned Russian assets will be used for military purposes. 
  • UK manufacturing | British manufacturers cut staff numbers at the fastest rate for almost five years in February, ahead of upcoming tax and minimum wage hikes. The UK manufacturing index fell to a 14-month low of 46.9 in February, down from 48.3 in January, the fifth successive month of contraction, any number exceeding 50 indicates expansion. Manufacturers have also cut back production amid declining new orders, restrained client confidence, and supply chain snags, including port disruption and many cargo ships continuing to avoid traveling through the Red Sea. On the domestic front manufacturers blamed heightened cost pressures, a reluctance to spend among customers, and measures announced by Chancellor Rachel Reeves in the most recent Autumn Budget.
  • Pension saving | Pension funds are in talks over committing more money towards military spending by rewriting a voluntary code signed by the biggest retirement providers in 2023. The Mansion House Compact was drawn up to encourage pension funds to invest more into growth industries to boost Britain’s economy. It could now be rewritten to include “national resilience,” among its core aims, unlocking billions for defence.
  • Mortgages | British lenders approved more mortgages than expected in January and net mortgage lending increased at the strongest pace since September 2022, according to data from the Bank of England. Lenders approved 66,189 mortgages for house purchases in the first month of the year. The mortgage market remained busy in January, largely due to first-time buyers ahead of the changes to stamp duty and needs based buyers that had put off acting during the volatility of 2024.  ­
  • Sick pay | Almost 1.3 million people who are paid less than £123 per week in the UK will get guaranteed sick pay which is equivalent to 80% of their weekly salary as part of changes expected to come in next year. The policy is expected to keep people off benefits as they will not need to quit their jobs while they recover. Officials claim that some people will be up to £100 better off per week, compared to the current system.
  • Spending cuts | The Chancellor has cut up to £1.4bn from spending on modernising schools and hospitals to pay for recent pay deals with trade unions. In July, the Government agreed a 5.5% pay rise for teachers and an average 4.05% pay rise for doctors.

Materials and commodities

  • Oil prices have fallen to their lowest levels in more than three years amid fears that a trade war is beginning to slow the world economy. Brent crude fell to $68.33 a barrel last Wednesday, a level last seen in late 2021. Oil prices have also been pushed lower by concerns of overproduction. OPEC+ agreed at the start of last week to boost output, producing an extra 2.2m barrels a day by 2026.
  • Bricks | Brick deliveries increased by 8.5% in January compared with the same month in 2024, while delivery of concrete blocks rose by 4.2% on the same basis. The delivery of building materials rallied at the start of this year on the back of new housing starts although levels remain subdued compared with recent years.
  • Steel | China announced plans to restructure its steel industry by cutting production to tackle the issue of overcapacity. The Chinese authorities did not give specifics on possible scope of cuts in this sector, but experts believe this is a clear signal from the government that it will regulate steel production this year. However, trade frictions cloud China’s 2025 steel exports outlook.
  • Material sales | The latest Builders Merchant Building Index showed that sales in 2024 were 4.1% lower than a year earlier, despite having three more trading days. Sales volumes were 4.2% lower, and prices were just 0.2% higher. The Builders Merchants’ Federation’s chief executive said that despite this, there were encouraging signs led by falling interest rates and growing consumer confidence.
  • Oil and gas tax | The UK government unveiled proposals that could ease the tax burden on the offshore oil and gas sector but confirmed that it would also ban new drilling licences as part of a pledge to unleash the North Sea’s clean energy future. In its place, ministers will consult on a new regime where duties move in tandem with global wholesale energy prices, providing investors with certainty. This mechanism would mean that tax rates could be lower than it is today in times of global stability or lower demand.

Environment

  • Sustainability laws | The European Commission has pushed back corporate sustainability laws until 2028, giving businesses more time to prepare for complex reporting requirements. The Corporate Sustainability Reporting Directive and Corporate Sustainability Due Diligence Directive is a piece of directive aimed at enhancing and standardising the disclosure of sustainability information by companies, promoting sustainable and responsible corporate behaviour. The delay follows widespread complaints from businesses struggling to rearrange supply chains and meet compliance requirements. The European Commission has also scaled back the scope of the reporting directive meaning only companies with more than 1000 employees and €50 million in turnover will need to report on carbon emissions. These laws apply to all businesses in the Eurozone and UK firms operating in the EU.

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 8,679.88 -1.47 13.32
FTSE 250 20,129.12 -0.97 2.69
Nikkei 37,028.27 -0.34 -6.70
CSI 300 3,944.01 1.39 11.26
S&P 500 5,770.20 -3.10 12.62
Nasdaq 18,196.22 -3.45 13.12
CAC 40 8,120.80 0.11 1.16
Dax 22,826.84 1.22 28.14
$ per £ 1.2914 2.59 0.50
€ per £ 1.1895 -1.72 1.27
Gold £/oz 2,252.81 -0.85 32.95
Brent Oil $/barrel 70.36 -3.36 -14.28

Weekly Summary

This week’s news of falling construction output and sentiment are not the return to confidence and certainty that the market wants, and demonstrates the need for a strong pipeline of public work to give businesses the confidence to invest. The focus of public spending over the last few years has been on building out of Covid largely with infrastructure schemes, but with a fresh focus on defence and – in the UK – facing the consequences of public sector pay deals, the extent of this public sector work may be questioned.

Last week also marked International Women’s Day. Following on from National Apprenticeship Week, it was another opportunity for the sector to showcase the wealth of careers, and attempt to address the industry’s enduring skills crisis. In the run up to International Women’s Day, our Economist, Ridha Shah spoke to Construction Management magazine about how the industry can learn from manufacturing in attracting women to hands-on roles. Read the article here.

Author contact

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

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