Market Research Bulletin: NHS told to use modern methods of construction in its upcoming hospital building programme
- The UK construction PMI beat market expectations in January 2020, rising to 48.4 from 44.4 in the previous month. Although activity in the sector is still contracting, January’s reading signalled the weakest pace of contraction since May 2019. The latest survey found:
- Housebuilding and commercial activity declined at a softer rate, while civil engineering works continued to drop sharply
- New business fell the least for 10 months and a modest degree of pressure on supply chain capacity was recorded, with lead-times from vendors lengthening slightly despite a drop in purchasing volumes
- Average cost burdens rose the most since July 2019 amid higher fuel and haulage costs, alongside increased prices for imported construction inputs
- Business optimism was the strongest since April 2018 with firms saying that clients' willingness to spend picked up after the general election
- Total construction output grew by 2.5% in 2019 according to the latest data from the ONS. New work accounted for the majority of the annual rise, growing by 3.4%. Repair and maintenance output also rose (0.7%) but was marginally down on the previous year’s growth figure (0.8% in 2018). All work output also rose in Q4 2019 despite the political turbulence, largely thanks to strong quarter-on-quarter performance in new public housing and private commercial sectors:
- Construction new orders in the UK were up 4.4% in Q4 2019 compared to the previous quarter but finished the year 1.2% lower than in 2018. The housing sector performed particularly poorly in 2019 with new orders down by 7.6% compared to the previous year. New infrastructure work on the other hand grew by 7.8%.
- The green light has been given for HS2. With £8bn already spent and the Government keen to show its commitment to new infrastructure that will benefit the regions, HS2 was always odds-on to go ahead. Whilst Boris Johnson acknowledged it had been a “difficult and controversial” decision, he said:
“This government will deliver a new anatomy of British transport — a revolution in the nation’s public transport provision...It will be a sign to the world that, in the 21st century, this United Kingdom still has the vision to dream big dreams and the courage to bring those dreams about.”
- The Government-commissioned Oakervee report has recommended that HS2 should consider re-procuring its main civil engineering contractors for phase 1 of the project if winning civils firms don’t agree to cut costs. The report said that a re-procurement of some or all of these contracts would introduce some delay to the programme but could potentially result in a reduction in costs.
- Deloitte’s latest regional crane survey found that new office space fell substantially in 2019 in three of the four cities covered in the survey. The annual survey said that the 4.3 million sq ft of office space being built across Belfast, Birmingham, Leeds and Manchester in 2019 was 12% lower than in 2018. Belfast was the only city covered by the survey to show an increase, with the volume of office space being developed rising by 37% between 2018 and 2019.
- Data from payment provider Barclaycard found that consumer spending grew by 3.9% in January 2020 – up from a lacklustre 1% growth seen over the Christmas period in the previous month. However, retail sales – which does not include consumer sub sectors like entertainment and digital subscriptions – rose by just 0.4% in January, according to the British Retail Consortium and KPMG.
- The UK economy saw zero growth in Q4 2019 due to political uncertainty and the unwinding of stockpiles. Stagnating quarterly growth meant that UK GDP was 1.4% in 2019 - marginally higher than the 1.3% rate in 2018. Growth in the final quarter of 2019 is expected to be a low point with recent surveys of activity and sentiment suggesting that Q1 2020 growth will improve significantly.
WORLD ECONOMIC NEWS
- In the year to December, Eurozone industrial production was down 4.1%— its weakest performance since the region’s sovereign debt crisis in 2012. The news came as economists revised down their forecasts for Eurozone economic growth in the current quarter, which factor in some disruption to European manufacturers’ exports and supply chains caused by the coronavirus outbreak.
- A study by the World Wildlife Fund has found that the loss of nature (eg coastal erosion, species loss and the decline of natural assets from forests to fisheries) could wipe £368bn a year off global economic growth by 2050 (or 0.67% of global income in 2050). The UK would be the third worst-hit country with a £16.2bn loss of annual GDP.
COMMODITIES & MATERIALS
- Demand for copper has taken a hit as traders in China (the world’s largest buyer of the metal) asked miners to cancel or delay shipments, declaring that coronavirus is a force majeure event. Copper prices have hit a near three-year low with many analysts saying that prices have further to fall if the contagion intensifies. Demand for other commodities (eg liquefied natural gas) have also been hit.
LME Copper (US$/Tonne)
- Despite lowering its three-month production forecast, steelmaking producer Vale maintained its full year production guidance of 340m to 355m tonnes. If Vale hits its annual guidance forecast, the 1.5bn tonne a year seaborne iron ore market will be oversupplied, but if it fails — and domestic production in China drops because of the coronavirus outbreak — there could be a shortfall that will help prop up prices.
- ArcelorMittal said that it expects demand for steel to pick up and prices to rise in 2020 despite the economic disruption caused by the coronavirus outbreak. Global demand for steel was depressed last year due to faltering economic growth and the rumbling US-China trade war, but Lakshmi Mittal, chairman and chief executive of ArcelorMittal said:
“We will see positive steel consumption growth in core markets [and] we’ve already started to see some price improvement.”
ANNOUNCEMENTS IN THE CONSTRUCTION PRESS
- London-based consultant TowerEight has been bought by US consultant Cumming for an undisclosed amount. Established in spring 2011, the firm now employs 75 people and in its most recent accounts had an income of £12.5m.
- Health minister Caroline Dinenage has said that the NHS will be told to use modern methods of construction (MMC) in its upcoming hospital building programme so that buildings can be more easily adapted in the future and help meet zero carbon targets. Boris Johnson has pledged £2.7bn to rebuild six existing hospitals and to build 40 in total. Dinenage said:
“We are encouraging the NHS to make the most of a range of modern construction approaches, including offsite manufacturing and standardisation, such as repeatable room design.”
- McLaren reported that profits slipped 11% to £3.3m in the year to July 2019. Turnover, however, was up from £586m to £651m. The firm said it was targeting more public sector work through national regional frameworks.
- Murphy, Mears Group and Laing O’Rourke were the three firms that have made the greatest improvement on the time it takes to pay suppliers, slashing their average payment times by 28, 18 and 18 days respectively. Mitie topped the table for the average number of days taken to pay invoices at 22 days. Just two firms are now failing to meet the Government’s target for firms to settle 75% of invoices within 60 days with suppliers.
- Data gathered by The Builder’s Conference contracting reporting service has found that the value of new construction contracts signed in January 2020 rose by 33% year-on-year (from £5.82bn to £7.77bn). An unprecedented 19 companies picked up more than £100m of new contract awards in the month. The £7.77bn total value of new work came from 668 separate signed contracts – with an average value of £11.6m each.
- A tech start-up called Magway is planning to build a network of underground tunnels to deliver packages across London. Capital raised from crowdfunding and government grants will enable the company to build a 1.2-mile test track to pilot its revolutionary transportation technology, which propels small carriages along pipes at over 50mph using magnets. Magway hopes to lay out its pipelines across London, eventually delivering 72,000 packages every hour - or 630 million a year - reducing air pollution and congestion. Construction of a wider UK network of pipes, spanning hundreds of kilometres, is expected to start in 2023.