3Rd July Market Research Bulletin

Market Research Bulletin: Hospital schemes set to receive £2.7bn cash injection

Construction

  • The IHS Markit/ CIPS UK construction PMI dropped to 43.3 in August from 45 in the previous month, below economists’ consensus estimate that the indicator would remain stable:

With construction activity contracting for a fifth consecutive month, the survey also found:

  • New work fell sharply amid Brexit uncertainty and weak demand
  • Commercial was the worst performing sector in terms of activity
  • Civil engineering activity also dropped steeply and residential fell for the fourth straight month
  • Buying levels fell due to lower operational requirements and increased efforts to contain costs Input cost inflation slowed to a 3.5-year low and job creation rate fell at the strongest pace since December 2010

UK Construction PMI (Source: IHS Markit/CIPS)

  UKConstruction PMI   Baseline


  • The Government has launched a consultation on energy regulations to improve the efficiency of new homes from 2020. Parts L (energy) and F (ventilation) of the building regulations will be tightened in two phases, with phase one taking effect in 2020. Proposed changes include reducing carbon emissions by 20-31% compared to current standards, as well as tightening transitional arrangements from old to new standards.
  • Housing minister Esther McVey has called for a centre of excellence to be established in the north of England that would champion modern methods of construction (MMC). At the Conservative party conference in Manchester last week, her backing was given to MMC as a mechanism to boost supply, saying that the centre would tie in with the Government’s broader Northern Powerhouse agenda. Speaking about MMC, she said:

“It has to be the way forward, it’s not only green but value for money.”

Esther McVey, Housing Minister
  • The Government has pledged to inject £2.7bn into publicly funding new hospital schemes across England as part of a hospital building programme. The funding means that six new large hospitals now have the money to get underway immediately, with schemes due to be completed by 2025. Health secretary Matt Hancock said the initiative would be the largest hospital building programme in a generation.
  • Building’s Top 150 Consultants survey found that the number of firms worried over businesses prospects for the coming year is at its highest level since 2012. More firms said they felt pessimistic (25%) than optimistic (19%) about the upcoming 12 months, largely due to Brexit, a stalling economy and concerns over the UK’s pipeline of infrastructure work. However, the survey also revealed that the turnover of the industry’s biggest firms grew by 12%, with the number of people they employ rising by 3.5% to around 75,000.
  • Structural steel contractor Billington reported rises in both turnover and profit in their latest interim results. They also noted that margins in the first half of 2019 increased to 5.7% (up by 0.8%). Benefitting from limited exposure to troubled larger contractors, the firm said it was on a sure footing for the future. The firm also said that it expected steel prices to stabilise if, as expected, the UK’s largest steel mill, British Steel, is revived by a new owner.
  • A G&T survey of 12 M&E contractors found that the average secured workload for the current year (2019) is 97.2%. Secured workload for the following year (2020) is currently at an average of 64.8%. Although a significant portion of 2020 pipeline has been secured, M&E contractors noted that Brexit, and the impact it could have on the supply chain, were the biggest risk factors facing the industry:
Secured Workload


UK Economy

  • UK GDP growth in the first quarter of 2019 has been upwardly revised by 0.1%. The ONS raised its quarterly growth estimate from 0.5% to 0.6% thanks to Brexit stockpiling. However, the ONS confirmed that Q2 2019 GDP growth remained at -0.2%, in line with its previous estimate.
  • UK Prime Minister Boris Johnson has outlined plans that he hopes will resolve the issue of the Irish border with the EU and end the deadlock over the UK’s departure. The proposals involve overhauling the withdrawal agreement by removing the Irish border backstop. The idea is to create two new borders - a customs frontier between the Irish Republic and Northern Ireland, and a regulatory one between the region and mainland Britain.
  • The UK’s services sector (which accounts for 80% of the UK economy) slowed in September as a majority of businesses reported falls in activity. The UK services PMI fell from 50.6 in August to 49.5 in September as demand weakened, jobs were cut and new export business received by UK service providers dropped.
  • After originally considering a pre-election giveaway Budget in late October, Sajid Javid’s first Budget is now expected to be delayed until after 31st October. The statement, which will include confirmation of the proposed infrastructure spending programme, is being delayed due to uncertainty about whether the UK is going to leave the EU with a deal.
  • There are signs that stockpiling activity is, once again, ramping up ahead of the 31st October Brexit deadline. The UK manufacturing PMI rose to 48.3 in September from 47.4 in the previous month, and although manufacturing activity was still contracting, the contraction was milder than anticipated. Manufacturers noted that inventory building activity increased but the impact was not enough to offset weakening demand as clients routed their supply chains away from the UK.


World News

  • The US has been given the go-ahead to impose tariffs on £6.1bn of goods that it imports from the EU. The WTO ruled that the EU has been providing illegal subsidies to plane maker Airbus, injuring competitors in the US aerospace industry. Tariffs are expected to apply from 18th October but Brussels has threatened to retaliate similarly against US goods. Meanwhile both the US and EU are waiting for the WTO to decide what tariffs the EU can impose against the US in retaliation for US state aid given to Boeing.
  • Global stocks fell sharply last Wednesday after poor US jobs data, weak manufacturing reports and geopolitical fears compounded. The UK’s benchmark FTSE 100 had its worst day in almost three years, closing 3.2% lower. Whilst the vast majority of consumer data still looks positive, poor manufacturing data raised concerns of a global industrial slowdown.
  • Chinese venture capital investment into the US has fallen to its lowest level since 2015. Chinese funds invested just $3bn in US companies in the first nine months of 2019 – down from nearly $7bn over the same period in the previous year. US scrutiny over national security has intensified, deterring foreign investors from making investments in sectors such as technology, military equipment and semiconductors.
  • Sweden, often considered the “canary in the coal mine” as far as the Eurozone is concerned, is experiencing rising levels of unemployment and household debt. Recently published manufacturing data shows that output suffered its worst slump since late 2008, prompting many to suspect that the open-trading country is in a light recession. Sweden’s weak PMI data tends to anticipate Eurozone trends by roughly two months, suggesting that PMI data for the Eurozone is likely to follow suit this winter.


Commodities & Materials

  • Saudi Arabia has fully restored oil production to almost 10m barrels per day following attacks on its key facilities last month. Crude prices responded to the news by falling to their lowest level since August, reversing all of the gains made in the immediate aftermath of the strikes.
  • Copper prices have slumped by more than 20% since June 2018 as a result of trade tensions and weaker demand. Because copper is heavily used in construction and manufacturing, its price is closely tied to momentum in the world economy. The slide in price threatens to limit investment in new mines which could lead to shortages of the material in the coming years.
  • Forecasts from The British Constructional Steelwork Association (BCSA) indicate that structural steelwork consumption will remain flat throughout 2019 with a slight boost in demand through 2020. The BCSA said that Brexit has created pent-up demand as a result of projects that have been put on hold.

“This means that the future workload is uncertain and is dependent on the Brexit outcome – although it may be that the market is simply waiting for a decision and no matter how the UK exits from the EU, we may see many of these projects released when we have more certainty.”

Sarah McCann-Bartlett, Director General, BCSA

Announcements in the Construction Press

  • The creation of a new town centre at London's Canada water has passed a key milestone with Southwark Council Planning Committee granting planning permission for British Land's masterplan. G&T is providing Cost Management services on the 53-acre mixed-use scheme which will deliver 2m sq ft of workspace, 1m sq ft of retail, leisure, entertainment, education and community space as well as 3,000 new homes - 35% of which will be affordable. The site includes Surrey Quays Shopping Centre, Surrey Quays Leisure Park, the Printworks and the former Dock Offices courtyard.
  • The Construction Industry Training Board (CITB) has said that the Government should reform its proposed skills-based immigration system to prevent labour shortages across building sites. The training body’s report found that 70% of employers of non UK-born workers do not consider the “low skilled visa”, as set out in the government’s white paper, suitable for their business – complaining the system will make it harder to recruit staff. The report highlights the barriers facing construction employers needing to employ non-UK workers and makes recommendations for changes to the immigration system.
  • BoKlok, a Swedish modular housing venture jointly owned by Skanska and Ikea, has released plans to develop 200 homes in the outskirts of Bristol. BoKlok homes are assembled from wooden panels that arrive on site in kit form. The proposed development will be the first BoKlok community in Bristol (and most likely the UK) and has been backed as part of the five-year Bristol Housing Festival that is trialling innovative offsite housing systems across the city.
  • The Builders’ Conference contracts monitoring service has provided the construction industry with some good news. Builders’ Conference chief executive Neil Edwards said that the value of all new construction contracts signed in the UK in September 2019 was an above-average £6.5bn, more than reversing the 25% decline seen in August.