All aboard?

Economic Week In Review | Issue 354 | 7 November 2022

UK construction

  • Construction PMI increased last month to 53.2, from 52.3 in September, and the highest level since May. Commercial building was the best-performing sector at 54.5 and Civil Engineering fell to 48.5, its fourth consecutive fall. New orders fell for the first time since May 2020.
  • Output | The Construction Products Association expects construction output to fall 3.9% next year led by a 9% fall in new build housing, whilst commercial and infrastructure viability will be challenged by escalating costs.
  • Commercial rent collection levels are “rising rapidly” with Remit Consulting reporting that an average of 83% of rents due were collected within seven days of the due date in the last quarter. This is the highest level seen since the pandemic.
  • Investment | The latest Europe Capital Trends report by MSCI Real Assets shows that London is the most active market for sales despite completed deals in the UK falling 33% compared to last year.
  • Infrastructure | Rishi Sunak has pared back plans to build a new high-speed line, “The Northern Powerhouse Rail”, which was announced by Liz Truss. The new line was expected to span Liverpool to Hull. The line had previously been cut back by Boris Johnson.
  • RICS survey | A third of surveyed surveyors are expecting a downturn and activity levels have fallen (but are still positive). It also reported that access to credit is now a key challenge for businesses. The survey is UK-wide and of businesses of all sizes.
  • Office Occupancy Costs are at their highest-ever levels according to Lambert Smith Hampton due to the increasing cost of energy. Costs rose 13% in the last year, or 18% for older (pre-2022) office buildings. It is the steepest annual rise in the 25-year history of the report.
  • Sizewell C was reconfirmed by the government after rumours that it was being considered for cancellation in the Autumn Statement.

Materials

  • Material inflation | The latest BEIS tracker shows that material prices began to increase again last month after a period of relative stability. Although prices increased just by 1%, a much smaller move than we have seen in recent months.
  • Timber battens | The National Roofing Contractor Association raised concerns that a large number of non-standard timber battens which have been falsely coloured and stamped with a fake British Standard compliance mark are in circulation.

UK economy

  • Base rates were increased by 0.75% to 3%, the largest increase in 30 years after a long period of stability. The Bank of England suggested that the rate will peak at a lower rate than previously advised and presented a few scenarios demonstrating how different interest rates and inflation can impact the economy.
  • Prospects | The Bank of England warned that the UK faces a prolonged recession which could last until the first half of 2024 and unemployment nearly doubling by 2025. However, unemployment is currently very low at 3.5%.
  • Services PMI fell below the crucial 50.0 marker, after sliding from above 60 over the last few months.
  • Net Zero | A report by the Public Accounts Committee (PAC) has concluded that emissions data reporting by the UK Government is “inconsistent” and the poor data cannot be used to assess whether the public sector is on course to meet its net zero targets. The PAC has previously suggested that all fiscal decisions and infrastructure proposals should be “stress tested” against net zero. Ministers are expected to publish an updated strategy for net zero by the end of March 2023.

Global economy

  • Gas supplies | The IEA is “sounding the alarm bell” over gas supplies in Europe in 2023, warning that whilst Europe has managed to fill stores to 95%, they cannot become complacent and that it is likely that stores will only be 65% full this time next year.

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 7,334.84 4.07 0.42
FTSE 250 18,341.57 2.37 -22.27
Nikkei 27,199.74 0.35 -8.14
CSI 300 3,767.18 6.38 -22.20
S&P 500 3,770.55 -3.35 -19.73
Nasdaq 10,475.25 -5.65 -34.41
CAC 40 6,416.44 2.29 -8.87
Dax 13,459.85 1.63 -16.16
$ per £ 1.1282 -2.51 -16.39
€ per £ 1.1402 -2.13 -2.37
Gold £/oz 1,478.11 4.37 9.72
Brent Oil $/barrel 98.57 5.12 19.13

Weekly Summary

Predictions of a recession have given many households and investors a reason to pause and reassess spending options. However, it is important to understand predictions in context. The largest rate increase in 33 years has happened after over a decade of relatively stable rates, unemployment levels are set to double, but the rate has been incredibly low for some time.

Ahead of the Autumn Statement next week, it is disappointing to see renewed uncertainty around the infrastructure pipeline, as rail lines are announced and then called into question with successive Budgets.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst

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