2002 Mrb 4 Feb

Market Research Bulletin: As the UK leaves the EU the Migration Advisory Committee advises against full Australian-style points system

CONSTRUCTION

  • The Migration Advisory Committee (MAC) has recommended against a full Australian-style points system, instead suggesting a mixed system that would see those coming to the UK with a job offer having to rely on a minimum salary threshold and a points-based system for those coming to the UK without a pre-arranged job. In its report the MAC suggested lowering the £30,000 minimum salary threshold to £25,600 but also noted that the recommended threshold would still result in an 8% drop in employment within the construction sector.
  • Chandru Dissanayeke, director of building safety reform at the Ministry of Housing, Communities and Local Government, told the Fire Protection Association at a conference in London that some developers are deliberately constructing buildings just below 18m in height to avoid current restrictions rather than improve building safety. Under regulations introduced in December 2018, buildings of 18m or more are banned from using combustible cladding materials. Dissanayeke said:

“Experts who say there’s a difference between 17.95m and 18m are being dishonest to themselves.”

Chandru Dissanayeke, Ministry of Housing, Communities and Local Government
  • Construction material prices fell across all four sub-sectors in 2019. After peaking in March 2019, the all-work index fell by 2.4% in the eight months to November 2019. Falling demand, lower key commodity prices and the appreciation of the Pound, have all factored into the recent declines in material prices and will help offset other rising input costs (eg labour):

Construction Material Price Indicies, UK

  New Housing   Other New Work   Repair & Maintenance   All Work



  • Research from insolvency firm Begbies Traynor has found that the number of companies involved in the development of building projects that were in ‘significant’ financial distress rose by 7% in Q4 2019 when compared to the same quarter in 2018. Construction and property accounted for the steepest rise in financially distressed firms for the last quarter of 2019. Begbies Traynor partner Julie Palmer said:

“Currently, we do not know if the failing performance within some sectors is due to short term confidence issues, or more fundamental economic and structural issues.”

Julie Palmer, Begbies Traynor
  • Matthew Vickerstaff, deputy chief executive at the Infrastructure and Projects Authority (IPA), has said there will be more major regional infrastructure schemes as the Treasury changes its method for evaluating the economic benefits of spending. New metrics will factor in the wellbeing of people in certain areas and reducing regional productivity gaps when assessing investment decisions. The increased focus on schemes outside the capital will benefit the Midlands and the North of England.
  • Barbour ABI figures show the industry flatlined in 2019. Just 9,500 contracts were awarded in 2019 with a combined contract value of nearly £60bn. The combined contract value rose by 0.2% in 2019 compared to the previous year but is 20% below the peak of £75bn that was awarded in 2015.


UK Economy

  • UK public sector borrowing fell slightly in December 2019, but total borrowing for the financial year to date was £54.6bn - £4bn more than the same period last year. £30.2bn of the borrowed £54.6bn was used for investment in areas such as infrastructure. Economists are expecting the Chancellor to increase spending on investment by about £10bn a year in the upcoming Budget.
  • A recently published key business activity survey — the flash IHS Markit/CIPS composite purchasing managers’ index — rose to 52.4 in January, from 49.3 in December. This means that the majority of companies reported an expansion of business activity as the UK benefits from a post-election bounce in business confidence.
  • In the three months to November the number of people in work rose by 208,000 in the UK compared to the previous three-month period - nearly double that which was expected by economists polled by Reuters. The employment rate reached a new high of 76.3% while the unemployment rate remained at 3.8% - its lowest since the 1970s.
  • The Bank of England voted to keep interest rates on hold at 0.75% with its Monetary Policy Committee (MPC) concluding that improvements in business sentiment had removed the need to cut the rate immediately. However the MPC estimated that the UK’s economy would only grow at an average rate of 1.1% over the course of the next three years as it transitions away from the EU.
  • After 47 years of membership, the UK officially left the EU on 31st January 2020. There will be few immediate changes until the transition period comes to an end on 31st December but more information on the future relationship between the EU and the UK is expected to come to light in the coming months. Regulatory and legislative alignment with the European bloc has so far been ruled out by Boris Johnson but this red line may prove to be a sticking point for any barrier-free trade ambitions.


World Economic News

  • The US has said that it will react with possible punitive measures if the EU decides to tax carbon imports. As one of the new European Commission’s top priorities, Ms von der Leyen outlined how her green deal programme would require some carbon border regulations or taxes to ensure that the benefits of the programme were not offset by carbon embedded in imports from places with lax environmental standards.
  • The IMF has marginally cut its global growth rate forecast for 2020 from 3.4% to 3.3% as well as reducing its 2021 forecast from 3.6% to 3.4%. Although global growth remains sluggish both forecasts are a little higher than the 2.9% growth rate achieved in 2019 – the worst year for the global economy since the financial crisis just over a decade ago.
  • Sustainability was high on the agenda at the recent World Economic Forum in Davos. Support was expressed by many of the world’s largest companies for aligning on a core set of metrics and disclosures in their annual reports on the non-financial aspects of business performance such as greenhouse gas emissions and strategies, diversity, employee health and well-being and other factors that are generally framed as Environmental, Social and Government (ESG) topics.


Commodities & Materials

  • British Steel’s Chinese buyer, Jingye, is reportedly looking into the possibility of building a new metals recycling furnace at one of the company’s smaller factories in Teesside. The Teesside beam mill currently processes basic metal, supplied by British Steel’s main plant in Scunthorpe, into products for the construction industry. Building a new furnace (or an ‘EAF’) would make it capable of producing its own primary material from scrap metal.
  • Equity research house Redburn has forecast a “dramatic” escalation in the price of cement, arguing that producers will face substantial costs to decarbonise by the middle of the decade. The sector, which was responsible for 7% of global carbon emissions in 2018, is one of the most difficult to decarbonise. According to Redburn’s report, the cost of producing the material will rise by 61% as a result of the industry having to invest in technology to capture and store carbon emissions.
  • The coronavirus outbreak has hit Chinese demand and weighed in on crude oil prices. After slipping to a three-month low below $60 a barrel last week, the OPEC Alliance is considering cutting oil production further in order to halt a renewed price rout.


Announcements in the Construction Press

  • The National Audit Office has revealed that £7.2bn was spent on HS2 up to April 2019. However, according to Department for Transport data, in the three months after the scheme was put under independent review (Aug-Oct 2019) at least £363m was paid to construction firms. Topping the earnings list was the Costain/Skanska joint venture responsible for carrying out HS2 demolition and enabling works inside the M25. The JV was paid £65m during the three-month period.
  • Despite prospects remaining bright in areas such as warehouses and infrastructure, total construction output in Great Britain is forecast to experience a slight decline of 0.3% in 2020, before a rise of 1.2% in 2021 according to the Construction Products Association’s latest forecasts. The CPA said that the lag between new orders and output meant that even if there was a significant increase in new contracts signed, we would only see activity on the ground pick up towards the end of 2021. Certainty beyond the end of the transition period from January 2021 continues to make large, up-front investments difficult to justify in areas such as prime residential and commercial offices.
  • Research published by the Civil Engineering Contractors Association (CECA) shows that professional indemnity insurance costs are spiralling as the market hardens. Of the polled CECA members 92% said contractors have experienced substantially increased premiums in the last five years and 85% said they have seen a reduction in the number of PI insurance providers. More than half found it impossible to get cover on an each-and-every basis (where the limit is payable in respect of each claim). CECA chief executive Alasdair Reisner said:

“There has been a substantial hardening of the [PI] insurance market accessible to contractors, which has meant there are fewer insurance providers, narrower cover, increasing premiums, and higher policy excesses.”

Alasdair Reisner, CECA
  • The City of London Corporation has unveiled plans to relocate Billingsgate, New Spitalfields and Smithfield markets to the former site of Barking Reach Power Station at Dagenham Docks. Relocating to the 42-acre, triple mega-market site will free up huge tracts of land for mixed-used developments. Consultation events began on 27th January and it is expected that planning application will be submitted in the spring. G&T is providing Cost Management services on the project.
  • Data from the IPF’s annual survey shows that two thirds of the 50 institutional and large-scale investors polled intend to increase their residential holdings over the next 12 months. The returns profile remains the main reason for investing, followed closely by stability of income. Other reasons include development potential and defensive qualities. The private rented sector (PRS) is the most common form of investment.
  • Allies and Morrison has drawn up proposals for Canary Wharf's North Quay that include towers up to 66 storeys tall. The concept could deliver around 950 new homes and a range of commercial uses. Tower Hamlets planning officers said Canary Wharf Group was looking to introduce up to eight new buildings to North Quay – which is currently being used as a temporary construction compound.

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