Economic Week In Review | Issue 359 | 12 December 2022
UK construction and property
PMI | November’s reading fell to 50.4, showing marginal growth, but business optimism in the construction sector has fallen to its lowest point in two-and-a-half years. Commercial work was the only sector to register an increase in growth. However, the survey also showed that cost inflation fell to a 22-month low.
Construction output | Total output grew for the fourth consecutive month, making it 5% greater than pre-pandemic levels. However, new work output only just managed to surpass the pre-pandemic level by 0.25%.
Housebuilding | Berkeley has slowed its development rate in response to a cooling market and new levies on the industry, such as a 6% increase in corporation tax and a new 4% building safety levy.
MMC | The National Fire Chief’s Council set out its concerns over modular construction in a position paper. It holds “particular concerns” over volumetric modular buildings and the use of engineered mass timber products, such as cross-laminated timber and glue-laminate timber.
Cladding repairs | The Department for Levelling Up, Housing and Communities has dedicated more than £8m to hold building owners to account for cladding repairs. Local council enforcement units can use the funding to pursue owners who are “dragging their heels”.
Student accommodation | Core demand is outstripping supply in 30 of the largest UK locations outside of London, according to data from StuRents.
Workforce | Applicants for UK construction jobs have fallen by half this year. The latest report from the Association of Professional Staffing Companies suggests that the current cost of living crisis is encouraging workers to stay put, rather than look for another job.
Materials and commodities
Oil prices have fallen, despite further restrictions on oil from Russia as concerns over reduced demand have outstripped supply concerns.
Packaging supplies | The largest packaging company in Britain will close its factory in Kent in order to expand its presence in Europe, citing trade friction between the EU and the UK. The company, DS Smith, said that the “UK economy is one of the weakest places for manufacturers now” and warned that diverging from EU rules would be of little benefit.
Basalt rebar | Skanska’s 12-month trial, alongside National Highways of low carbon reinforced concrete (made with no cement and no steel) has yielded sufficiently positive results and will be used more widely. The rebar is five times lighter and twice as strong as steel.
Coal mine | The UK’s first new coal mine in 30 years will be built in Cumbria. It will produce 2.8m tonnes of coking coal a year, mainly for steel making. However, the scheme will also emit 400,000 tonnes of carbon a year, and the steel industry has stated that it does not support the project, with Chris McDonald, chief executive of the Materials Processing Institute stating that “The UK steel industry has been clear that the coal from the West Cumbria mine has limited potential due to its high sulphur levels”. It will also open at a time that the steel industry is looking to de-carbonise, meaning that 90% of its product will need to be exported. It is claimed the mine would create 500 skilled jobs, as well as potentially 1,500 more in the supply chain.
Covid fraud | The taskforce set up to recover at least £3.4bn lost through fraud and errors in the furlough scheme and Eat Out to Help Out is to begin winding down in March and will close in September. HMRC has more than halved the amount of money it expects to recover to £1.1bn.
Finance sector | The Chancellor will announce a package of more than 30 reforms to the financial services rule book such as removing the cap on bankers’ bonuses and “ringfence” rules which are intended to separate risky investments from a bank’s retail operations.
Household spending in the UK is falling behind the rest of the G7 countries and is currently 3.2% lower than pre-pandemic levels. In contrast, spending in the US has increased 7%, and 0.3% in France since Q4 2019 (the last full quarter before the Covid-19 pandemic).
Interest rates | The Bank of England’s Policy Committee will meet this Thursday, with interest rates expected to rise by 0.5% to 3.5%, with further increases likely next year. They were 0.1% a year ago.
Energy supply | The National Grid has asked “contingency” coal plants to fire up as a result of the current cold snap. Normally the UK imports nuclear energy from France but maintenance of those plants has reduced capacity and Europe has its own energy crisis as a result of the war in Ukraine. Day-ahead energy rates have jumped with record rates expected on Monday afternoon.
Carbon capture | The first power station in the UK to use carbon capture has received planning permission. The plant will be built in North Linconshire and will be complete in 2027. It is estimated to be able to remove 1.5 million tonnes of carbon from the atmosphere every year, around 5% of the UK total.
Trade disputes | The EU is to take two cases against China to the World Trade Organisation after it was unable to resolve issues around restrictions on Lithuanian exports and Beijing’s coercive practices against patent holders.
Friday to Friday
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Brent Oil $/barrel
The construction industry seems to be performing a balancing act between supply and demand, cost pressures, uncertain futures, and sustainability requirements. All of these factors can be considered encouragements for development as well as blockers. The divergence in PMI between different sectors is an example of the impact of these factors.
However increasing uncertainty in policy, global factors and household spending could give cause for a marked fall in confidence.
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