A change of approach

Economic Week In Review | Issue 298 | 20 September 2021

Materials and commodities

  • Iron ore prices fell 20%, in its steepest fall since the 2008 financial crisis after new figures showed lower output from Chinese steel mills. China produced 83.24 million tonnes of crude steel in August, a 13.2% drop from the same period a year ago, according to data from China’s National Bureau of Statistics.
  • Oil prices fell after the dollar increased in strength and the US rig count rose despite several facilities in the Gulf of Mexico remaining closed. ING analysts expect the downward pressure to continue across oil and other commodities.
  • Energy prices | Wholesale energy prices in the UK have reached record highs stemming from high global demand for natural gas after last year’s cold winter left stocks low. It is of particular concern in the UK because more than half of the UK’s electricity is generated in gas-fired power stations. UK factories and steel makers account for a significant portion of energy usage in the UK so worries exist around the vulnerability of the sectors. Some steelwork plants have reportedly suspended peak hour production. The issue pushed the FTSE 100 down 1.6% on Monday morning.

UK construction and property news

  • Rental growth in the industrial and logistics sector is expected to exceed forecasts, according to Savills. 24.1m sqft of space was bought in the first half of the year, a new record, and vacancy rates have reached new lows.
  • Care homes | A new report by Knight Frank shows that reduced development levels in 2020 will cause a shortage of care home beds. Supply has increased 6% in the last ten years, but the over-65 population segment has increased by more than 22%.

UK economy

  • Employment | Job vacancy figures passed 1 million in the three months to August, reaching a record high. Payroll figures also increased by 241,000 in August to reach 29.1 million, passing pre-pandemic levels.
  • UK retail sales fell in their worst period since 1996, falling for the fourth month in a row. Online and in-store sales fell 0.9% in August, following a 2.8% fall in July.
  • Measurements | The government has vowed to restore imperial weights as part of the deregulatory dividend from Brexit.
  • Cabinet reshuffle | Key roles in government were reshuffled with Michael Gove now becoming the minister for Housing, Communities, and Local Government. The department has been rebranded as the Department for Levelling Up, Housing and Communities.
  • Inflation | Consumer price inflation has reached a nine-year high of 3.2%, a significant increase from the 2% seen in July. Core inflation (which excludes volatile items such as food and fuel) rose 3.1%. However, annual figures do come from a low base, as August 2020 saw the Eat Out to Help Out scheme push inflation down.

Global news

  • Covid Pass | Italy has become the first EU country to require all workers to have a valid Covid passport. Non-compliance will result in a 1,000 euro fine for the worker and if an employer fails to check a workers’ status, they could be liable for a 1,000 euro fine. Covid tests will be free to those who cannot be vaccinated, and of low cost to others.
  • European rate rise | Unpublished models expect the European Central Bank to reach its 2% inflation target by 2025, and that the bank will raise interest rates in two years, a year earlier than planned, according to the Financial Times.
  • Evergrande contagion | Property groups in China and Hong Kong saw share prices fall to the lowest levels in a decade as developer Evergrande’s liquidity crisis worsened. Last year Beijing introduced new rules to control the amount of debt at large real estate companies. Evergrande owes more than £217bn, across 171 domestic banks and 121 other financial firms and has warned it will not pay interest payments due.
Tender Price Index

Published every six months, our Tender Price Index is an analysis of inflation price deviation in construction prices. Click on the link above to view our most recent Index.

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 6,963.64 -0.93 15.92
FTSE 250 23,658.94 -0.59 34.66
Nikkei 30,500.05 0.39 30.56
CSI 300 4,855.94 -3.14 2.51
S&P 500 4,432.99 -0.57 33.55
Nasdaq 15,043.97 -0.47 39.38
CAC 40 6,570.19 -1.40 31.98
Dax 15,490.17 -0.77 18.10
$ per £ 1.3755 -0.65 6.22
€ per £ 1.1724 0.09 7.36
Gold £/oz 1,277.41 -1.19 -15.40
Brent Oil $/barrel 75.34 3.32 74.60

Weekly Summary

Price increases across the economy are an ongoing concern, especially as supply and demand pressures differ at various points of a supply chain before the final market demand is even considered. Steel, for example, has seen the price of iron ore fall because of artificially reduced demand (pollution caps), but also the cost of manufacturing has increased as the energy crisis comes to the fore.
General inflation in the UK has been low since 2013, only reaching the Bank of England’s 2% target throughout 2017, so the current period of inflation, no matter the cause of it, will no doubt need a change in approach and management. The same can be said of construction where inflation rates have been below the long-run average for some time now.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst

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