Scale rules?

Economic Week In Review | Issue 360 | 3 January 2023

UK construction and property

  • Retail | An average of 47 stores a day closed in 2022 – a total in excess of 17,000. The Centre for Retail Research findings show that 11,636 stores closed due to rationalisation programmes, and 5,509 were due to insolvencies. Total closures reached a five-year high, although closures due to corporate collapse were down 56% due to the collapse of Debenhams and Arcadia in 2021.
  • Housing market | House prices have experienced their longest fall since the financial crisis, having fallen for a fourth consecutive month.
  • Insolvencies | The Red Flag Alert estimates that there is approximately £300m in bad debt within the UK construction industry and this could increase to £1bn by the start of 2024. Unpaid bills, staffing and supply chain issues, the legacy of Covid, inflation and interest rate increases are all having an impact.
  • Staircase consultation | A consultation has been opened by the government on plans to make second staircases compulsory in new residential buildings over 30 metres.
  • Nuclear reactors | Balfour Beatty has joined up with Holtec International, a US small modular reactor power station builder, to act as the main constructor of mini reactors across the UK. It aims to complete its first 490MW unit in the early 2030s and build up to 10 by 2035.
  • Hinkley Point C extension | The “long-stop date” for the nuclear power plant has been extended by three years to November 2036. This means that the plant will receive state support even if it doesn’t become operational until 2036. The originally agreed date was 2025. EDF maintains that the plant’s start-up schedule remains unchanged.

Materials and commodities

  • Natural gas prices in Europe have fallen back to pre-Ukraine war levels due to warmer weather. Since Christmas Eve, Europe has been sending more gas to storage than it has drawn out of them.
  • British Steel | Chancellor Jeremy Hunt is considering a £300 million rescue of British Steel, a move supported by the levelling up secretary, Michael Gove, and Grant Shapps, business secretary.
  • Material sales at builders merchants were down 5.6% in October 2022 but price increases of almost 14% meant that sales by value were up 7.5%. Sales in the Renewables and Water Saving category increased by 66%.
  • Plasterboard prices are set to rise by more than 15% from this month. The increase comes after increases of nearly 100% in 2022.
  • Iron ore | One of the world’s largest producers of iron ore pellets, Ferrexpro, has reopened its plant in Ukraine after suspending output in October as electrical supplies were damaged. The closure pushed pellet production down by 68%.

UK economy

  • Recession forecasts | The annual survey of economists by the Financial Times suggests that the UK will face the deepest recession amongst the G7 nations, forcing interest rates to remain high and encouraging tighter fiscal policy. Respondents were split over the future of the workforce. However, UK GDP is expected to shrink by 1% in 2023, compared to 0.1% in the Eurozone and growth of 0.25% in the US. Growth in the UK is expected to return in 2024.
  • Trade deals | The Conservative manifesto pledge to agree post-Brexit trade agreements for 80% of the country’s global business is expected to be missed.
  • Trade | The British Chambers of Commerce reported that trade from UK companies in the EU has become more difficult and that more than three-quarters of businesses found that the UK’s exit deal was not helping them to increase sales or expand their businesses.
  • Government borrowing reached a record high of £22bn in November 2022, an increase from £13.1bn a year earlier. Inflation and the Energy Bills Support Scheme drove the increase.

Global economy

  • China | Factory activity fell in December as the country was hit by fresh waves of Covid-19.
  • Singapore saw economic growth of 3.8% in 2022, led by construction growth of 10.4% and 2.3% growth in services.

Friday to Friday

Price / Index Week %
change
Annual %
change
FTSE 100 7,451.74 -0.28 0.91
FTSE 250 18,853.00 0.12 -19.71
Nikkei 26,094.50 -0.54 -9.37
CSI 300 3,871.63 1.13 -21.63
S&P 500 3,839.50 -0.14 -19.44
Nasdaq 10,466.48 -0.30 -33.10
CAC 40 6,473.76 -0.48 -9.50
Dax 13,923.59 -0.12 -12.35
$ per £ 1.2077 0.16 -10.78
€ per £ 1.1293 -0.51 -5.08
Gold £/oz 1,507.89 1.05 11.52
Brent Oil $/barrel 85.91 1.67 10.45

Weekly Summary

Company finances are being closely watched as the cumulative impact of the variety of pressures experienced over the last few years continues to be felt in already damaged coffers.

There is little remaining doubt that a recession is upon us, and despite the economists’ warnings of the deepest recession in the G7, it is useful to take note of the scale of this. The UK’s economy is expected to fall by 1% before returning to a small amount of growth next year.

Author contact

Rachel Coleman
Rachel Coleman,
Associate Research Analyst

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