CLC launches industry recovery plan to help supply chain emerge from the pandemic
- The CLC has launched an industry recovery plan laying out strategic proposals to secure a sustainable path towards the recovery of construction businesses nationwide. The plan is divided into three phases (‘Restart’, ‘Reset’ and ‘Reinvent’) which will be delivered over two years. Measures being called for include delaying the implementation of reverse-charge VAT for a year as well as increased public-sector investment in regeneration projects. The plan also suggests implementing procurement model based on whole-life value rather than lowest cost and also calls on public bodies to accelerate the development of business cases for civils projects as well as speeding up procurement and construction of projects to boost the industry.
- Keith Waller, head of the Construction Innovation Hub, has said that the industry needs to work together and remain united as it attempts to recover from the downturn induced by COVID-19. Speaking on the CLC’s Roadmap to Recovery plan, Waller said that the industry needs to speak as one “joined up” voice on strategy rather than having multiple industry recovery plans. He said:
“Anyone who thinks that the right thing to do is to go back to the previous way of working and the previous delivery models and the previous approaches and thinks that somehow that’s going to support a recovery and a transformation is deluding themselves. It will be undermining the hard work that’s gone in.”
- The IHS Markit/CIPS UK construction PMI Survey reading increased from an all-time low of 8.2 in April to 28.9 in May. The softer pace of decline in activity reflects a gradual reopening of construction sites and lockdown measures were eased:
According to the latest construction survey:
- Around 64% of the survey panel reported a drop in UK construction activity during May, while only 21% signalled an expansion
- Ongoing business closures and disruptions across the supply chain held back the extent of recovery
- Rapid drop in new orders almost exclusively attributed to coronavirus
- Respondents noted that clients were cancelling new projects citing concerns that spending would be scaled back in Q2 2020
- Residential and civil engineering work most resilient whilst commercial was the worst performing area
- Supply of building materials constrained as vendors gradually reopened
- The CPA forecasts that UK construction output will fall by 25% during 2020. The 25% decline is the CPA’s most optimistic of the three scenarios modelled and is based on a ‘V-shaped’ or ‘tick-shaped’ recession with a slow economic recovery from June. The CPA says that although the worst effects on activity are in late March, April and May, activity in each month in the second half of 2020 is likely to be lower than in the same month one year ago. It’s anticipated that the least affected sectors will be non-housing r&m (-4.7%), public non-housing (-6%) and infrastructure (-9%). Construction output is then anticipated to rise by 26% overall in 2021 under its main scenario.
- Housing secretary Robert Jenrick has launched the Government’s new £1bn building safety fund, which will meet the cost for remediation of unsafe non-ACM cladding systems on residential buildings in the private and social sector that are 18m and over and do not comply with building regulations. The fund will help leaseholders facing significant bills from remediation projects. The Government has also published an amendment to Approved Document B (the statutory guidance to building safety regulations) which means that all new residential buildings over 11m tall will be have to be fitted with sprinkler systems.
- EDF and its junior partner, CGN, recently submitted a planning application for a 3.2 gigawatt atomic power plant on the Sizewell site in Suffolk. The plant, which is already home to another plant operated by EDF (Sizewell B), could produce approximately 7% of the UK’s electricity. However, the application for Sizewell C has unleashed fresh questions over the cost effectiveness and need for the plant. Some politicians have also questioned China’s role in building critical UK infrastructure.
- According to Creditsafe, the number of construction companies that fell into administration rose from nine in April 2020 to 35 in May. However, April’s figure is still lower than the 36 administrations that were recorded in February of this year. COVID-19 has exacerbated the already difficult trading conditions as money began to run dry through the supply chain. DRS Bond Management MD Chris Davies said:
“As there was so little work done in April, there was little to collect in May. Even with furlough and other government schemes, those coming into lockdown with insufficient reserves were on borrowed time.”
- Contractors such as BAM, Multiplex and Wilmott Dixon have joined more than 200 business leaders who have written to Boris Johnson, urging him to prioritise environmental sustainability as he plans the nation’s recovery from the COVID-19 crisis. The letter emphasises the point that an ambitious low-carbon growth and environmental improvement agenda can address many of the economic and social concerns facing the UK and accordingly urges the prime minister to focus on low-carbon sectors.
- Speaking at a TfL board meeting last week, Crossrail chief executive Mark Wild said that all stations apart from Bond Street are at a level of completion where the trial running of trains can start. Bond Street station is expected to be ready for trial runnings by mid-July and Wild confirmed that the determining factor in whether the revised summer 2021 opening date could be met was whether trial running could start this year. Testing of the signalling software resumed last week as around 25% of site staff returned to work.
- A recent trading update from Balfour Beatty said that 83% of its UK and US construction sites were operational in May but that the pandemic has had a “material impact” on its financial performance. It said that 1 in 5 sites that did stay open “experienced significant disruption due to the availability of employees, subcontractors or materials”. Despite the group’s order book growing 20% (to £17.4bn) from its prior year end position, Balfour Beatty added that its performance for the rest of this year depended on improving current productivity and, “ensuring satisfactory contractual resolution on projects impacted by COVID-19”.
COMMODITIES & MATERIALS
- Ibstock and Forterra, two of the UK’s largest brick makers, have outlined restructuring plans in response to the lower volume of brick sales. Although demand has begun to recover from recent lows as a result of the lockdown, Ibstock said that sales were still around 70% lower than the same period one year ago. Production has restarted at a third of its manufacturing sites in response to match the current levels of demand. Meanwhile, Forterra said that despite its sales having recovered to 50% of corresponding 2019 levels, its revenue had declined year-on-year by 86% in April and 62% in May.
- A glut in the supply of aluminium has caused the benchmark price for delivery in three months on the London Metal Exchange to fall 15% to $1,537 a tonne this year. Supply is expected to outstrip demand by nearly 6m tonnes in 2020 as producers around the world have continued to churn the material out despite collapsing demand. Prices, however, are expected to recover later in the year as key raw material prices stabilise and demand recovers.
- Saudi Arabia plans to unwind the oil production cuts it pledged in May. The agreement it reached in April with the OPEC+ group to curb production of 9.7m barrels per day appears to have helped restore order in the market as Brent crude prices have rebounded from an 18-year low of below $20 a barrel in April to about $40. Saudi Arabia is now poised to bring 1m b/d of production back now that demand is beginning to return.
- The pace of decline in UK business activity slowed in May, but remained at a near record rate. According to IHS Markit/CIPS, activity in both services and manufacturing sectors remained far below average levels, with PMI readings of 29.0 and 40.7 being recorded in May. CIPS director Mark Brock said the figures showed that managers feared any improvement was unlikely in the medium term:
“As the pandemic progressed, any hoped-for bounceback in business output never really got going in May...though a modicum of recovery will offer small respite in some sectors”
- Nearly 200 companies have called on Prime Minister Boris Johnson to launch a green economic recovery plan. The letter states that the recovery must be used to accelerate the UK’s net zero climate target and that any efforts to rescue and repair the economy in response to the pandemic should be aligned with UK’s legislated target of net zero emissions by 2050. Companies that signed the letter called for financial support packages and future corporate bailouts to have green strings attached, a condition that could have a big impact on the aerospace, aviation and steel industries.
- Chancellor Rishi Sunak is preparing to unveil an economic stimulus package in July to help mitigate the impacts of what is likely to be the deepest recession in living memory. Proposals are being developed to pump money into training schemes and infrastructure projects, as well as providing help for technology companies. Plans for a stimulus package come as ministers consider publishing the delayed national infrastructure strategy, setting out £100bn of capital spending over the course of the parliament.
- The Eurozone is on the verge of sliding into deflation as the pandemic has dragged price growth in the bloc down to 0.1% in May – its lowest level in four years. Inflation turned negative in 12 of the 19 Eurozone countries, prompting European Central Bank to inject more monetary stimulus into the economy by buying an extra €600bn of bonds. A prolonged period of deflation would make high corporate/government debt levels harder to manage as interest payments stay fixed but wages, prices and tax payments all fall in cash terms.
- Projections by the Congressional Budget Office (CBO) estimate that COVID-19 will shrink the US economy by $7.9 trillion over the next decade. The figure, which equates to 3% of real GDP, is attributed to curtailed consumer spending, diminished investment and weaker inflation. The estimate comes as the latest jobs data shows that 42.6 million Americans have filed for unemployment during the pandemic so far.