Is this the calm before the storm?

Economic Week In Review | Issue 334 | 30 June 2022

Materials and commodities

  • Balance of trade | The UK’s (already stretched) target to halve the building materials balance of trade deficit is considered out of reach. After eight years, the deficit has more than doubled from £6bn to £13.2bn in 2021.
  • Construction machinery | The UK remained a net exporter of construction machinery in Q1 2022, but the balance of trade reduced substantially as imports increased 54% but exports fell 9%.
  • Shipping | Experts expect port and landside congestion and high shipping rates to last into 2023 and that rising shipping costs, longer transit times, and greater uncertainty will become the new normal.
  • Oil refining capacity | Around a third of China’s fuel-processing capacity is currently idle due to strict export limits to support clean air policies and less crude input from Russia. Although China does not generally export much refined oil it can act as a swing producer when there is a global shortage.

UK construction and property

  • Covid loans | Analysis by accountant Price Bailey warns that there has been a surge in construction companies defaulting on Covid loans. Of the 97,000 businesses awarded loans, 2,000 have already defaulted in the first two months of repayments. The default rate in construction is 2.5%, more than twice the rate in other sectors.
  • Insolvencies | The number of property investment firms becoming insolvent increased from 46 companies in Q4 2021 to 81 in Q1 2022, the highest quarterly figure in more than a decade according to tax and advisory firm Mazars.
  • Modular homes | TopHat, a modular housing developer which is 70% owned by Goldman Sachs, announced plans to build a new mega-factory in Corby, Northamptonshire. When completed, it will be capable of producing 4,000 homes per year.
  • Debts | Documents at Companies House reveal that the collapse of Urban Splash has left £12m of unpaid invoices held by their supply chain.
  • Confidence | The most recent RIBA Future Trends Survey showed an expectation of increased future workload despite economic concerns.
  • Labour | Hinkley Point has improved its construction efficiency at its second site by 20% to 30% when compared to unit one. It still has 8,000 workers on site.
  • Labour demand | The latest analysis by the Construction Skills Network reveals that construction needs another 250,000 workers by 2026 to meet demand.
  • Wages in construction fell in April after March’s large bonus payouts. Baseline pay, without bonuses, increased 2%.

Global economy

  • Labour | The European Central Bank has suggested that the influx of Ukrainian refugees could ease the shortage of labour in the Euro zone. The latest European Commission survey shows that 27% of businesses cite labour as the factor limiting production.
  • Federal reserve | The US central bank increased interest rates by the largest margin for nearly 30 years, It warned that it will take “a couple of years” for inflation to return to 2%
  • Energy | Germany is to significantly increase its use of coal to secure its energy supply ahead of winter, as Russia cut capacity on its main gas export line to Germany. Emergency laws will be passed to reopen mothballed coal plants.
  • Markets | Stock markets around the world fell dramatically and bond rates increased making it more costly for governments to borrow money, prompting many central banks to meet and discuss market conditions.

UK economy

  • Inflation warnings | Tesco has warned of “unprecedented increases in the cost of living”, after the Bank of England warned that inflation will reach 11% in October. Food price inflation is expected to reach 15% according to the grocery trade body IGD.
  • Recession warnings | Several surveys of economists, as well as the National Institute of Economic and Social Research have suggested that Britain will enter a recession at the end of the year, although they differ as to the severity of it.
  • Labour warnings | The National Farmers’ Union and the travel industry have both voiced stark concerns about their capacity to work given acute labour shortages. Easyjet has reduced its summer schedule in response to staff shortages
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 7,016.25 -4.12 -0.02
FTSE 250 18,925.91 -3.80 -15.22
Nikkei 25,963.00 -6.69 -10.36
CSI 300 4,309.04 1.65 -15.55
S&P 500 3,674.84 -5.79 -11.80
Nasdaq 10,798.35 -4.78 -23.04
CAC 40 5,882.65 -4.92 -10.45
Dax 13,126.26 -4.62 -15.03
$ per £ 1.2200 -1.03 -11.70
€ per £ 1.1651 -0.57 0.11
Gold £/oz 1,505.47 -0.90 17.73
Brent Oil $/barrel 113.12 -7.29 53.88

Weekly Summary

Rumours and doubts over market health have been increasing in volume over recent weeks, but there continue to be good news stories in construction around efficiencies and modernisation. Whilst we continue to work in the current market, increasing costs and risks cannot be ignored and, where possible, should be tracked and understood on a project-by-project basis.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst

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