Positive PMI outlook, the second wave, and spending

Economic Week In Review | Issue 235 | 29 June 2020

UK news

  • Liverpool | Businesses and political leaders in Liverpool have asked for government help in backing a £1.4bn recovery plan to prevent a socio- economic crisis “deeper than the 1980s recession”.
  • Rents | Less than 15% of retail rents were paid in Q2, down from 20% in Q1. Across all commercial lets, receipts were 18% (25% last month) with office landlords seeing the steepest decline to 23% from 31%, a situation which doubtless has precipitated the administration of Intu.
  • UK manufacturing | The flash PMI figure jumped to 50.1, from 40.7 in May, hovering just above the 50.0 marker for no change.
  • UK services flash PMI rebounded to 47.0, up from 29.0 in May.
  • Sterling | A poll of analysts suggests that if a UK/EU trade deal is achieved,sterling could be pushed up to $1.30 (+4.4%)
  • Recovery spending | Boris Johnson has said that he plans to increase public investment in order to recover from the impacts of coronavirus, saying that the virus had been “a disaster” for the UK “but in those moments you have the opportunity to change and do things better.”

Global news

  • IMF forecast | In an update to its April forecast, the IMF has warned that the economic damage done by Covid-19 is worsening as the virus was not contained and is now focussed on the Americas. It now expects global growth to fall 4.9%, having previously forecast -3%.
  • Global trade | The World Trade Organisation has revised its outlook saying that its worst-case scenario (a 32% drop in global trade) will probably be avoided. In its optimistic view, the WTO expects trade to fall 13%, and forecasts a rebound of between 5% and 20% next year, depending on a second wave of Covid 19.

Materials and commodities

  • Rebar | Liberty Steel Group UK will begin shipping rebar from its Rotherham site in September, having completed a series of trials. Demand for rebar is expected to increase, in part due to HS2. The rebar is to be created using a high percentage of recycled, green steel from another of Liberty’s plants.

Construction and property news

  • Huawei planning approval | Huawei is to spend £1bn over the next five years establishing a new chip research and manufacturing facility in Cambridge.
  • Planning permissions with an expiry date between 23rd March 2020 and 31st December 2020 will be automatically extended to 1st April 2021. According to government estimates, 400 residential permissions for 24,000 new homes expire in this period. Barbour ABI has reported issues with new planning applications as firms are finding it difficult to reach council staff.
  • CITB levy | The CITB has announced levy bills will be suspended for three months and it will look to halve next years bill, with an option of spreading payments. Total income from the levy will now be £73.8m this financial year, rather than a pre-crisis forecast of £198m.
  • Furlough | According to the latest survey by the ONS, construction companies had 37% of staff on furlough at the end of May. This is reportedly due to social distancing requirements, reduced demand in some sectors, or as a way of managing cashflow.
  • Pay | The latest data from the ONS shows that construction wages suffered the largest fall of any sector in April and the number of vacancies in the industry halved. This covers the period that large pay cuts were announced amongst contractors. However, last week Laing O’Rourke reported that it is to restore full pay to all staff from 1st August having previously cut them by 20- 30% in April.
  • Extended working hours which were introduced to help facilitate social distancing on residential sites will be allowed to continue until 1st April 2021

Friday to Friday

Price / Index Week %
change		 Annual %
change
FTSE 100 6,159.30 -2.12 -17.05
FTSE 250 17,113.21 -2.14 -12.07
Nikkei 22,512.08 0.15 5.81
CSI 300 4,138.99 0.98 8.19
S&P 500 3,009.05 -2.86 2.29
Nasdaq 9,757.22 -1.90 21.87
CAC 40 4,909.64 -1.40 -11.36
Dax 12,089.39 -1.96 -2.50
$ per £ 1.2334 -0.24 -2.99
€ per £ 1.1000 -0.47 -1.52
Gold £/oz 1,436.08 1.70 29.35
Brent Oil $/barrel 41.02 -2.77 -38.36

“June’s PMI data add to signs that the economy looks likely return to growth in the third quarter”

Chris WIlliamson, Chief Business Economist at IHS Markit

Weekly Summary

This week global concerns of a second wave of coronavirus increased (in addition to worries over continually high cases in America) which shook investor confidence. However, the idea of localised lockdowns in the UK may help to abate worries of a total lockdown, should cases increase.

Economically the week presented
mixed news: PMI is looking increasingly positive, yet the IMF has lowered growth expectations for the year because of the continued geographical spread of the virus.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst

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