7Th April 2020 Construction Update 780 Px External Overview Header

Contractors restarting work after pause to review and redesign operations at UK sites

7Th April 2020 Construction Update 780 Px External Overview

CONSTRUCTION

  • The IHS Markit/CIPS UK Construction PMI slumped to 39.3 in March 2020 from a 14-month high of 52.6 in the previous month and below market consensus of 44.0. According to latest construction PMI survey results:
    • Steepest contraction in output since April 2009 as measures to contain the spread of COVID-19 led to stoppages of work on site and a slump in new orders
    • Civil engineering activity saw the steepest rate of decline, followed by commercial building work and residential activity
    • Overall new business fell the most since August 2019 due to a combination of weaker demand and concerns among clients about the feasibility of starting new projects during the outbreak
    • Employment dropped the most since September 2010
    • Reduced capacity and shortages of stock among vendors led to the steepest lengthening of lead-times since October 2014
    • Looking ahead, business expectations were the weakest since October 2008


UK PMI by Sector: March 2020 (Source: IHS Markit/CIPS)

  Manufacturing   Services   Construction   Baseline


  • A number of major builders' merchants have restarted some services after a 24-hour shutdown last week. Travis Perkins announced that while its outlets would stay closed, it would make deliveries to specific sites, such as hospitals, food retailers and social housing, for the purpose of emergency repair work. It will also supply critical infrastructure and utility sites. Jewson is also keeping branches closed and running a limited delivery service. The merchant will only supply trade customers, but has not placed any conditions on the types of project it will service. The Builders Merchants Federation has prepared details of whether its member companies are open, operating a reduced service or closed. To view click here.
  • According to Glenigan, as of 31st March, 1,945 construction sites (representing approximately 26% of the UK’s total) had suspended work. However, because larger sites have been disproportionately affected it means that actually 65% of the value of all work currently under construction in the UK has been suspended. Sites that are still open are generally working at lower levels of productivity because of the social distancing measures.
  • The Government has confirmed that making buildings safe, including progressing the remediation of high-rise buildings with unsafe cladding, particularly those with unsafe Aluminium Composite Material (ACM) cladding and maintaining measures to ensure buildings are safe ahead of remediation, remains a priority for the Government and is critical to public safety. Additional project management support has been put in place to support individual remediation projects.
  • The new Coronavirus Act, which became law on 25th March 2020, will allow local authorities to make decisions remotely. Section 78(2) of the Coronavirus Act enables provision to be made in the regulations for ‘persons to attend, speak at, vote in, or otherwise participate in, local authority meetings without all of the persons, or without any of the persons, being together in the same place’. In summary, the Act allows the business of meetings (eg planning applications) to be executed virtually, subject to the confirmation of regulations from the Secretary of State, which are imminent.
  • A second version of the CLC’s Site Operating Procedures (SOP) was withdrawn shortly after publication following feedback from the sector which said that the updated rules were impossible to follow. The second version of the guidelines insisted that “where it is not possible or safe for workers to distance themselves from each other by two metres, work should not be carried out”. Whilst the CLC review feedback on version 2 of SOP they have confirmed that version 1 is the document the industry should be complying with. Version 1 provides that contractors are required to ensure 2m distance between workers "where possible".


CONTRACTOR NEWS

  • BAM, after reviewing and redesigning work at all of its UK sites, has restarted work at a number of its sites where parties are willing and able. This includes re-opening critical healthcare schemes around the country that are building new COVID-19 facilities or adapting current facilities to treat Coronavirus patients. Where sites have been re-opened, the number of workers on sites have been significantly reduced. Its closed sites are predominantly in Scotland, London and the Midlands. BAM Construct UK’s chief executive, James Wimpenny said:

“Buildings are central to people’s lives, and at this time they are also central to saving people’s lives. These are the most extraordinary and concerning times for us all. We are all in this together, working hard to save lives and livelihoods.”

James Wimpenny
  • Approximately 80% of Kier’s sites or workplaces continue to operate after taking a brief 24-hour pause to ensure that sites can operate in line with the Construction Leadership Council’s (CLC) Site Operating Procedures. If sites or workplaces are not able to operate to this standard, Kier has said that it, “will either implement modifications to their layout or working practices or close them”. For the year ended 30th June 2019, 73% of Kier’s core construction and infrastructure services activities related to work for Government departments or quasi-governmental entities (e.g HS2 or Network Rail) and a further 13% related to the provision of services to regulated entities (e.g in the utilities sector).
  • A number of contractors have or are currently taking short pauses to conduct project risk assessments, implement social distancing measures and formulating plans about how continue with work on site. Measures being taken include the introduction of one-way systems on site, changing access protocols, reducing canteen areas, implementing rules to prevent congregating in groups during breaks and provision of hand sanitiser/washing facilities.
  • According to a survey by the Federation of Master Builders (FMB), 10% of FMB members who have applied for the Government’s Coronavirus Business Interruption Loan Scheme (CBILS) have been rejected, with the vast majority (84%) still waiting to hear back from their bank. The survey also found that many local builders are also being asked for a personal guarantee on application, or being forced to take out an overdraft with high interest. More than half of respondents reported that they found the application process “difficult”.
  • The NHS Nightingale hospital at the ExCel Centre in east London – one of several temporary emergency complexes currently being built – is on course to get the remaining beds ready in record time. The space will house 4,000 beds to help deal with the COVID-19 pandemic. The first stage of work at the ExCel was completed in just 10 days and at peak the site had 500 workers on it with some parts of the job, such as installing miles of electrical cabling and critical medical equipment, carried out at night.


COMMODITIES & MATERIALS

  • After surging last week on hopes of a cut in supply, Brent crude oil prices fell 12% after markets reopened on Sunday. Brent crude fell in early trading to just over $30 a barrel as a meeting between Russia and Saudi Arabia was postponed as a war of words deepened. Saudi Arabia moved to flood the market last month after Russia refused to make further cuts to production, before the extent of the demand collapse from coronavirus lockdowns was fully known.
  • Vale – the world’s biggest iron ore producer – expects prices for the steel ingredient to fall as a result of weaker demand from steel mills. Analysts are growing increasingly concerned about slowing demand in Europe where blast furnaces are closing and some material is being re-sold. An overly stocked steel industry in China (which continued to produce the metal during the coronavirus crisis) is also putting downward pressure on prices. Over the past week iron ore has fallen 6% to a six-month low of $82 a tonne. Analysts at Citigroup project that prices will fall a further 17% to $70 in the coming weeks.


UK ECONOMY

  • Business activity in the UK dropped to its lowest level in almost 20 years as the UK services PMI (which accounts for approximately 80% of the UK economy) dropped from 53.2 in February to 34.5 in March – the lowest reading since records began. The UK manufacturing PMI also contracted significantly in March, falling to a three-month low of 47.8. Difficulties obtaining raw materials, shipping delays and closed borders led to the sharpest contraction in orders since 2012 as supply chains crumbled. The latest figures point to an economic recession of unprecedented scale and depth.
  • UK consumer confidence has fallen to 2008 levels according to a consumer confidence index compiled by GfK. The index plummeted from minus 7 in February to minus 34 at the end of March – its lowest level since the 2008 financial crisis. Measures implemented to prevent the spread of COVID-19 have fuelled fears over personal finances and the health of the economy, with the survey scores showing a slump in buying intentions.
  • Official figures show that 950,000 applied for the Government’s universal credit benefit since the UK’s lockdown began on 16th March 2020. The surge in claims suggests that despite the support promised by government for workers furloughed by their employers and for the self-employed, the UK is suffering job losses on a scale and speed unprecedented even in the aftermath of the global financial crisis.


GLOBAL ECONOMY

  • China's official manufacturing PMI rose to 52.0 this month, up from a record low of 35.7 in February and above the 50 mark which signals improving conditions. Production and new orders rose above 50 but export orders and imports were still below 50. This reflects that domestic demand has recovered faster than external demand. The National Bureau of Statistics (NBS) attributed the surprise rebound in PMI to its record low base in February and cautioned that the readings do not signal a stabilisation in economic activity.
  • The COVID-19 pandemic has pushed the global economy into the sharpest downturn since the Great Depression. Economists are forecasting double-digit percentage declines in output in Q2 2020 as vast swaths of the world’s two most advanced economic zones (US and Europe) shut down. Economists have also slashed global economic growth forecasts with the Bank of America expecting the global economy to contract by 2.7% in 2020.
  • The OECD has suggested that each additional month of shutdown will lower annual GDP growth by two percentage points. Unless the cessation of activity is brief, this will be the biggest contraction in history.

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