Are we in it for the long run?

Economic Week In Review | Issue 333 | 13 June 2022

Materials and commodities

  • Sterling | Data from the Commodity Futures Trading Commission reveals that a growing group of investors expect sterling to fall. The Commission tracks how speculative investors are positioned in futures contracts. Bets against the currency are at their highest level in nearly three years.
  • Timber | After its rapid increase throughout the pandemic, timber prices in America have fallen 50% in the last 12 months.

UK construction and property

  • PMI | The overall construction index still showed growth but at a reading of 56.4, which is lower than the 58.2 which was recorded in April, marking the lowest reading for four months. Housing output was a major drag on output growth, falling to 50.7 which is its worst reading since the sector closed at the height of the pandemic.
  • Output in the construction industry fell slightly (-0.4%) last month partly because of strong growth seen in March after Storm Dudley. All new work is still slightly lower than pre-covid levels and commercial remains 27% smaller. The ONS also warned that “Estimates for April 2022 are subject to more uncertainty than usual because of challenges we have faced with data collection….This has led to lower response rates than those seen before the coronavirus pandemic.”
  • John Lewis has announced plans to develop 10,000 rental homes on a number of its sites, revealing the first three locations to be in Bromley, West Ealing, and Reading. The company is looking to earn 40% of profits from outside retail by 2030, and be a key part of the build-to-rent property market.

UK economy

  • Growth | The UK will see the slowest growth of all developed countries this year, and stall next year. The OECD expects 3.6% growth this year followed by 0% in 2023. It also expects CPI to peak at over 10% this year before falling back to 4.7% by the end of 2023. However, this does not take into account the impact of the most recent emergency support for households.
  • ONS growth | The latest figures show that the UK economy shrunk by 0.3% in April, missing forecasts of +0.1%. Reduced household spending is now a key concern for analysts.
  • Debt | The National Institute of Economic and Social Research has calculated that the Treasury has spent £11bn paying too much interest servicing the government’s debt. Last year it advised the government to insure the cost of servicing the debt by converting it into bonds with a longer maturity.
  • Inflation | Economists surveyed by the Financial Times expect the UK to have the highest inflation in the G7 for the next two years. The UK is more exposed to energy pressures than other European nations due to a lack of gas storage.
  • Insolvencies | In the first quarter of 2022 the number of UK insolvencies doubled compared to 2021. Early data for April from PwC shows a further 21% increase in April. It is expected that the trend will continue as higher energy and material costs weigh on businesses.
  • Borders | UK food businesses warned that UK border officials’ rigid approach to fruit and vegetable imports is causing serious delays and adding significant costs to consumer prices.

Global economy

  • Recession risk | The World Bank warned that less developed countries in Europe and east Asia face a “major recession” and the risk of stagflation is higher because of the war in Ukraine, lockdowns in China, and supply chain disruption.
  • US inflation reached an unexpected high of 8.6% driven by housing, fuel and food. The 40 year peak suggests that the Federal Reserve will increase interest rates further. Core CPI, which removes the volatile elements such as food and fuel, rose 6% annually.
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 7,317.52 -2.86 2.57
FTSE 250 17,673.32 -2.96 -13.46
Nikkei 27,824.29 0.23 -3.88
CSI 300 4,238.99 3.65 -18.87
S&P 500 3,900.86 -5.05 -8.16
Nasdaq 11,340.02 -5.60 -19.40
CAC 40 6,187.23 -4.60 -6.26
Dax 13,761.83 -4.83 -12.31
$ per £ 1.2327 -1.34 -12.65
€ per £ 1.1718 0.46 0.46
Gold £/oz 1,519.15 2.49 14.17
Brent Oil $/barrel 122.01 1.91 67.85

Weekly Summary

For the last few years we have been preoccupied with serious but relatively short-term issues – such as the pandemic and most recently, the war in Ukraine – and other upheavals have masked the disruption caused by Brexit. However, as we continue to better understand the true impact of Brexit (which is still coming into full force) it seems that it will be some time before the economic environment in the UK stabilises.

As companies endure higher prices across labour, materials, energy, and debt servicing, we will be keeping a close eye on insolvency figures. Whilst these have previously been eased by covid-support programmes and a lack of formal processing throughout lockdowns, should the current trend of insolvencies continue, it will quickly raise alarm bells – not least in the construction industry.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst

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