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Market Research Bulletin: The City of London Corporation publishes the UK’s first wind microclimate guidelines

  • Construction output in Great Britain fell by 0.7% in June as a result of a fall in repair and maintenance work. The figures also show a decline of 1.3% in Q2 2019 (Apr to June), largely reversing an increase of 1.4% in Q1 2019. The largest quarterly decline came from public other new work (-10.9%), with local authorities both reluctant and unable to push forward with delivering new offices, schools, hospitals, surgeries and shops:
Construction Output August
  • The Government has published the terms of reference for a review into whether and how to proceed with HS2. The cost-benefit analysis will be led by Douglas Oakervee, a former chair of Crossrail and HS2 itself. The review will assess the benefits of the project and the full cost as there is a growing consensus that the current estimate of £56bn is at least £30bn off. Transport secretary Grant Shapps said:

“The prime minister has been clear that transport infrastructure has the potential to drive economic growth, redistribute opportunity and support towns and cities across the UK, but that investments must be subject to continuous assessment of their costs and benefits. That’s why we are undertaking this independent and rigorous review of HS2.”

Grant Shapps, Transport Secretary
  • The City of London Corporation has published the UK’s first wind microclimate guidelines for new development proposals in the Square Mile. The guidelines provide a framework for assessing the impact of planning applications on wind conditions for pedestrians and cyclists as the growing number of skyscrapers can intensify the behaviour of wind. The guidelines require that wind impacts are tested at the earliest point of a scheme’s design development (e.g. height and massing) to avoid the need to retrofit wind mitigation measures.
  • A UK government policy that effectively called time on the construction of more wind farms unless out at sea is facing a legal challenge from renewable energy developer Banks Renewables. Banks believes that the exclusion of fully-consented onshore wind farms from participating in the Government's contracts for difference (CfD) auction process is against the public interest, prevents consumers from benefiting from the lower energy prices that would result from their inclusion and, from a legal perspective, does not comply with either EU or UK law.
  • The Government has dropped the requirement that contractors pay 95% of all invoices within 60 days or risk being frozen out of new public sector projects. After admitting that the target was too high, the figure has now been lowered so that firms would be deemed not to be at risk of being barred from public sector work if it has paid between 75% and 95% of all its invoices within 60 days in at least one of the previous two reporting periods.
  • Housing minister Esther McVey has confirmed that the government expects the removal of unsafe aluminium composite (ACM) cladding from privately-owned residential tower blocks to be completed by June 2020, unless there are “exceptional circumstances” which prevent the work being done by then. The government said there are still 324 high-rise residential and publicly owned buildings with ACM cladding unlikely to meet Building Regulations that have yet to be remediated in England, more than two years on from the Grenfell Tower disaster.


UK ECONOMY

  • The UK and South Korea have formally signed a time-limited continuity Free Trade Agreement allowing bilateral trade to continue in the event of a no-deal Brexit on October 31st. The two-year agreement will protect annual trade flows which totalled £14.6bn in 2018 (or 1.1% of total British trade). A more permanent trade deal will have to be renegotiated within two years.
  • The UK’s public finances were weaker than expected in July amid Brexit uncertainty. Whilst the Government received more income than it spent last month, the surplus was £2.2bn less than in the same month last year and under half the £2.7bn forecast by economists. Public finances are likely to come under further strain following a succession of spending promises by the new prime minister.
  • After two delays in the UK’s departure from the EU, business groups have admitted that “EU Exit fatigue” has left many companies ill-prepared for a no-deal Brexit on 31st October. Edwin Morgan from the Institute of Directors said that businesses were “seriously underprepared” for no deal, with smaller businesses especially facing “unknown unknowns”. He went on to say that:

“Until recently the level of planning has been fairly low. Our surveys show that businesses had been waiting to see what happened. The message from the government is getting clearer, but is still not clear enough.”

Edwin Morgan, Institute of Directors
  • UK retail sales unexpectedly rose 0.2% in July compared to the previous month. The rise was helped by the strongest growth in online spending in three years (6.9% increase from June 2019). Promotions such as Amazon’s Prime Day are thought to have driven online sales.
  • The UK economy shrank by 0.2% in Q2 2019 - the first time in almost seven years. Slowing stockpiling activity, Brexit uncertainty and weaker global growth all fed in the poor quarterly figure, raising fears of a possible recession if the economic contraction continues.


WORLD NEWS

  • Boris Johnson has said he has been “powerfully encouraged” by his meeting with German chancellor Angela Merkel last Wednesday. The German Chancellor expressed hope that the UK end EU could “find a solution in the next 30 days” on the issue of the Irish Backstop (an insurance policy in the withdrawal agreement aimed to prevent a hard border between Northern Ireland and the Irish Republic).
  • Ahead of the 45th G7 summit French President Emmanuel Macron softened his stance on changing the withdrawal agreement, saying that “without totally reshuffling the withdrawal agreement” it could be amended providing it complied with the integrity of the single market. Separately, prior to the summit Macron urged the US to help reform the global corporate tax code, saying that US tech giants and other digital multinationals paid unfairly low taxes by booking profits in low-tax countries, no matter where the revenue originates. Macron said that such companies are not contributing to the common good.
  • The cost of servicing debt in developed countries has fallen to its lowest level for more than 40 years, putting pressure on governments to borrow and increase expenditure. Advanced economies will spend just 1.77% of their combined GDP on debt interest this year according to the OECD — the lowest since 1975, and down from a peak of 3.9% in the mid-1990s.
  • Germany’s economy is teetering on the edge of recession as GDP shrank 0.1% in Q2 2019. The lacklustre performance of the export-oriented economy has been hit by rising trade fears, the slowdown of Chinese imports (particularly German cars) and home-grown industrial and economic problems.
  • Last week the US yield curve (which plots the interest rates on Treasury bonds of different maturities) inverted for the first time since the summer of 2007. That means that the US Government has to pay less interest to borrow money for a 10-year bond than it did for a two-year bond. An inverted yield curve has preceded every one of America’s last seven recessions, which typically follow within 24 months of inversion.


COMMODITIES & MATERIALS

  • Oyak, the Turkish military pension fund and new owner of British Steel, plans a productivity drive that could lead to several hundred job losses. Productivity at the main plant in Scunthorpe is considered low compared to other European steel producers and the groups immediate focus is to boost output to 3m tonnes a year (from the 2.8m tonnes produced last year). UK taxpayer support is also being sought for investment in “green” steelmaking.
  • Iron ore prices continue their decline. Prices for the steel-making ingredient ended at $83.75 a tonne on 21st August - down 33% from its peak so far this year of $125.20 on 3rd July. Analysts believe the fall is being driven by concerns over demand for steel in China following a surge in production in the first half of the year. High inventories and stabilising supply conditions are also putting downward pressure on prices.
  • Nickel, the commodity used for making alloys, has gained more than 45% at the benchmark London Metal Exchange since the start of 2019. The threat of an Indonesian export ban and forecast supply deficits propelled the stainless steel input to a near five-year high.
  • According to the latest ONS data, construction material prices (for All Work) rose by 0.3% in June 2019 after experiencing two consecutive months of either zero or negative price inflation. The 0.3% rise corresponds with a further weakening of Sterling in both May and June, as well as a partial recovery in oil prices in June:


Construction Material Price Indicies, UK - Index, 2010=100 (Source ONS)

  New Housing   Other New Work   Repair & Maintenance   All Work


ANNOUNCEMENTS IN CONSTRUCTION PRESS

  • Housebuiler Persimmon suffered a drop in profits and sales for the first six months of 2019 following complaints over the quality of its homes and executive bonuses. Despite achieving new housing operating margins of 31%, pre-tax profit for the first six months of 2019 have fallen to £509m from £516m last year. Revenue was also down 4.5% over the period as fewer properties were sold.
  • Costain’s revenue for the first six months of the year has also dropped. Contract delays, project cancellations and an adverse arbitration ruling caused revenue to drop by 22%. Pre-tax profit over the period more than halved from £19.9m to £8.4m, due in part to a £9.7m pay-out after a legal dispute over a long-completed contract.
  • The Treasury has granted £600m of funding to five house-building projects in the South East from the £5.5bn Housing Infrastructure Fund. The funding being given to the Local Authorities will help make the housing developments viable. Winners include Essex County Council who plan to use £218m to build a new train station and road improvements to unlock up to 14,000 homes.
  • TfL has suspended the contract award confirmation for its £1bn Silvertown Tunnel scheme following a legal challenge of the outcome of its procurement process by the reserve bidder, STC. While STC lodged its claim with the construction court in early August, the papers detailing the reasons for the challenge are not yet publically available.
  • Nadhim Zahawi has taken over from Andrew Stephenson as the new construction minister as part of part of Prime Minister Boris Johnson’s cabinet reshuffle. Zahawi will be responsible for managing industrial strategy and sector deals, as well as supply chains and regulatory reform.
  • Balfour Beatty’s 2019 interim results statement said that despite ‘unprecedented levels of uncertainty’ surrounding Brexit, it managed to treble underlying profits from its UK construction activities in the first half of 2019 from £5m to £17m. Chief executive Leo Quinn said that the company has been planning for all outcomes, noting that:

“Having over 50% of both the order book and the Investments portfolio dollar denominated reduces the group's exposure to political uncertainty in the UK.”

Leo Quinn, Balfour Beatty

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