28Th October 2020 Construction Update 780 Px Web Banner

CPA upgrades 2020 and 2021 output growth forecasts in latest Autumn scenarios publication

CONSTRUCTION

  • Data from the ONS’ Business Impact of COVID-19 Survey (BICS) results shows that over 40% of surveyed construction firms are reporting that turnover is lower than what would normally be expected for this time of year. Until the latest two week period (covering 21st Sept – 4th Oct), the proportion of firms reporting that turnover was lower than what was normally expected had fallen consistently since the end of May. Additionally, very few firms (5.8%) are reporting a higher turnover while most (43%) say that turnover has not been affected. Firms’ revenues are likely to remain under pressure for as long as new orders continue to remain subdued.
28Th October Graphs For Web
  • HRMC’s latest preliminary Coronavirus Job Retention Scheme (CJRS) statistics show that after peaking at 723,600 on 14th April 2020, the number of employments furloughed had fallen to 185,700 as at 31st August. This was the third largest proportionate decrease from the peak to 31st August across all sectors (-74%) except for energy production and supply and mining and quarrying, but these sectors had far fewer employments furloughed. Construction employers made claims worth just over £3.5bn to the end of August, with 72,100 firms in the sector (or 31%) making use of the scheme.
  • The Construction Leadership Council (CLC) has published new guidance on topics related to the movement of goods and materials into and between GB and NI after the expiration of the transition period with the European Union. The guidance includes an overview of the new customs regime, information on trading between GB and NI and NI and ROI, an introduction to the new UK Global Tariff (UKGT). The guidance also includes a section on standards and alignment as well as border planning and stockpiling materials in the event that shortages are experienced.
  • The CLC has also published advice on the new immigration laws that are set to come into force next January and access to skills post-Brexit. The guidance, which provides advice on actions firms should take, offers an overview of the new points-based immigration system, the common travel area (CTA), the skilled worker route, the shortage occupation list, how to become a licensed sponsor, the rights of EU, EEA and Swiss migrants, the mutual recognition of professional qualifications and the construction industry scheme (CIS) as well as useful links and resources.
  • The CPA’s Autumn Scenarios forecast shows that construction output is set to fall by 14.5% this year and that the recovery in 2021 will depend on the industry’s ability to negotiate a “crucial winter”. A worsening labour market, the risk of a no-deal Brexit and an uncertain future for the commercial sector are the main challenges facing the industry as output struggles to recover after recording the sharpest fall on record in Q2. The forecast predicts that output could grow by 13.5% next year but this is highly reliant on Government spending and policy interventions. At the moment output is being powered by pent-up demand in private housing and the completion of refurbishment work that stopped when sites were closed. However, the end of the stamp duty holiday and uncertainty in the employment market carry the risk of reducing demand in Q2 next year.
  • Data from the ONS’ Business Impact of COVID-19 survey showed a slight rise in the proportion of construction firms reporting both a severe and a low risk of insolvency in the latest two-week period. The proportion of firms reporting that there was ‘No Risk’ of insolvency also fell marginally from 27.3% to 25.7% compared to the previous two-week period for which data is available. The data coincides with a relatively high proportion of firms (32.9%) reporting that they have less than three months of cash reserves.
28Th October Graphs For Web2


CONTRACTOR NEWS

  • Contractors are chasing for spots on three separate public buildings and infrastructure frameworks worth a combined £1.6bn. The four-year frameworks are regional versions of framework provider LHC’s new Public Buildings and Infrastructure framework, with the frameworks for England and Scotland both valued at £750m and one for Wales valued at £100m. The frameworks will succeed the LHC’s Schools and Community Buildings frameworks, which expires next June and includes incumbents such as Kier, Vinci, Seddon, Galliford Try, Morgan Sindall and Willmott Dixon.
  • Newarthill, the parent company of Sir Robert McApline, posted its highest turnover for five years according to its latest accounts. Income rose 23% to £1.054bn in the year to October 2019 with pre-tax profit rising to £20.7m (compared to a £232,000 pre-tax loss in 2018). The firm warned that revenue would be lower in its current financial year because of the COVID-19 pandemic. Profits are also expected to fall because of site closures earlier on in the year, lower productivity levels and increased costs from new safety processes. The firm plans to focus on the healthcare, education and infrastructure sectors to help weather any ongoing economic storms. McAlpine chief executive Paul Hamer said:

“There is still a great deal of geo-political uncertainty and unpredictability with respect to Brexit and a trade deal, COVID-19 and the wider economy but we are grateful to have a healthy pipeline of work and strong and enduring client relationships.”

  • Architects Perkins & Will and Penoyre & Prasad have committed to ensure that their internal fit-outs of offices and commercial property will be net-zero by 2030. From November 2020, the London practices will offer, as standard, a net-zero embodied carbon or circular design strategy up to RIBA Stage 2. Perkins & Will has produced a sustainability manifesto called ‘Net-Zero Now’, setting out targets to ensure fit-out projects align with its net-zero commitment. To achieve net-zero embodied carbon target, the architects will promote sustainable resources and re-used materials that can be later re-used elsewhere too, on a circular economy basis.
  • Kier has published targets to become a net-zero carbon company by 2045 but still expects to be using offsetting to compensate for its carbon footprint. Kier’s strategy document, called Building for a Sustainable World, states: “Our new sustainability targets include achieving Net Zero carbon across our own operations and supply chain by 2045, eliminating avoidable waste by 2035 and becoming single-use plastic free by 2030.” Kier will measure the success of its sustainability actions “not only through traditional volume metrics, but also through commercial performance indicators”.


COMMODITIES & MATERIALS

  • The latest ONS Business Impact of COVID-19 Survey results (covering the period 21st Sep – 4th Oct) revealed that 7.1% of surveyed construction firms had been unable to get the materials and goods needed. A significant proportion of firms (23.6%) said that while they had been able to obtain the required materials and goods, they had to change suppliers or find alternative solutions. Furthermore, 17% of firms surveyed also said that the overall choice of suppliers for sourcing materials and goods had decreased since the start of the pandemic, putting upward price pressure on many materials. Although the proportion of construction firms reporting that they were stockpiling in the two-week period was low (2.4%), this is likely to increase over the coming weeks as a result of greater uncertainty over whether a UK/EU trade deal will be reached.
  • The CPA’s latest State of Trade survey found that sales among construction product firms in Q3 have been much higher than expected. A third of heavy side firms and nearly a half – 48% – of light side firms reported sales were up in Q3 compared to the previous quarter. Just 13% of heavy side firms and 9% of light side firms expected sales to rise in Q3 in the CPA’s Q2 survey in July, showing that the performance (driven by the private housing sector) during the period surpassed expectations. Although the long-term picture is less certain, more than half (56%) of all construction product firms expect their sales to rise in Q4.
  • In its latest trading update, Travis Perkins reported that total group sales fell by 3.4% in Q3 2020 compared to the same period in 2019. Sales at its plumbing and heating division were down 20.4% compared to the same period in 2019 and merchanting sales down by 10.5%. It said that while branch closures since June were a significant driver in the reduction of total sales, businesses have successfully migrated a significant proportion of sales to nearby branches. The firm noted that the sluggish performance of large housebuilding and construction projects had taken its toll on its specialist and trade businesses. However, Nick Roberts, Travis Perkins chief executive, said:

“...there are signs of increasing workflow across these sectors as underlying demand strengthens as businesses have adapted to new and safe ways of working that enable them to keep sites open during periods of local lockdown.”


UK ECONOMY

  • A report by a leading group of University of Oxford academics has suggested that the Government should avoid large, bespoke infrastructure projects such as the HS2 railway line when it looks to construction to boost the UK economy in the wake of COVID-19. The report noted that such mega projects are too slow, costly and risky to effectively stimulate gross domestic product. Bent Flyvbjerg, professor of major programme management at Oxford University’s Said business school said, “HS2 is the type of project that should be avoided because it is bespoke, slow and prone to waste. You need the exact opposite to successfully stimulate GDP: standardised, fast and frugal.” He suggested backing smaller, immediate projects that can be built relatively quickly using a modular approach (eg schools, wind farms and hospitals) could stimulate GDP more effectively.
  • The IHS Markit flash (or interim) PMI reading for the UK’s services and manufacturing sectors shows that the economic recovery lost steam in October. The flash indexes fell from 56.1 to 52.3 (services) and 54.1 to 53.3 (manufacturing) in October as tighter COVID-19 restrictions limited activity more than expected. Although the majority of businesses reported improving activity compared to the previous month, respondents in the service sector noted slower growth of output, a renewed fall in demand and further deterioration in the labour market.
  • Data from the ONS revealed that retail sales in September were 4.7% higher than they were in the same month last year. Spending rose at the fastest annual rate in more than a year suggesting that consumers continued to support the UK’s fragile economic recovery in September. Month-on-month retail sales rose 1.5% from August - the fifth consecutive expansion following a record contraction in April. However, economists said the new round of COVID-19 restrictions across the country posed a severe threat to continued growth.


GLOBAL ECONOMY

  • China’s economy expanded by 4.9% year-on-year in Q3 2020 as industrial growth powered the country’s recovery from the coronavirus pandemic. The expansion of GDP was well ahead of the 3.2% increase in Q2. The recovery has been stoked by a state-backed industrial boom as industrial production leapt 6.9% in September - its highest level this year. Retail sales in September also recorded their best performance this year. The latest data suggests that China is likely to be the sole major economy in the world to register positive growth this year.
  • The OECD has said that the pandemic has ended a decade’s growth in the flow of migrants around the world. The number of residency permits granted by OECD countries in the first half of 2020 was less than half the level seen a year earlier, as many governments closed borders and stopped processing applications. The OECD said that there are strong signs that mobility will not return to previous levels for some time. This is due to weaker labour demand, persistent severe travel restrictions as well as the widespread use of teleworking among high-skilled workers and remote learning by students.