7Th July 2020 Construction Update 780 Px Web Banner

‘Build, Build, Build’: UK Government announces plans to help construction’s recovery


  • According to the ONS, 39.3% of construction firms surveyed between 1st-14th June 2020 stated that their current cash reserves would last three months or less. A large proportion (over 16%) were unsure how long their reserves would last. Cashflow continues to be a pressing issue as project programmes extend and cash reserves dry up. Reserves are expected to come under increasing strain over the coming months unless new orders rise.
7Th July Graphs For Web
  • The ONS also reported that between 1st-14th June 2020, for construction firms that continue to trade, approximately 26% of their workforce were furloughed, compared with 34.5% at the end of May 2020. The improved figure is down to sites reopening and activity on site ramping up. However, after an initial flurry of activity to complete suspended projects, it’s unclear what will happen to the workforce in the longer-term given the recent falls in new orders and demand as a result of the COVID-19 pandemic.
  • New Chartered Institute of Building (CIOB) president Mark Beard has said that he expects disputes between contractors and suppliers to escalate once the Government’s furlough scheme ends. He said that loan schemes, VAT deferral and the furlough scheme have helped contractors’ cash flow but noted that:

“The worst sort of behaviour hasn’t happened but I think it’s put off the day of reckoning. I think it’s inevitable we’ll see more bad behaviour.”

Beard, along with other industry leaders, reiterated that main contractors have a responsibility to ensure they do everything they can to support suppliers over the next “tough” six months.

  • Transport for London (TfL) has issued a sector-specific briefing note to construction firms on how their workers can safely use the capital’s public network amid the ongoing pandemic. The note advises that employees who can work from home, such as administrative and head office staff, should continue to do so. Other recommendations included:
    • Enhance the facilities employers offer, such as lockers, showers and cycle storage, to enable your workforce to walk and cycle all or part of their journey to site
    • Changing operating hours and staggering shifts
    • Working with local planning authorities to change site operating hours further if necessary
    • Working with neighbouring sites to stagger operating times or workers’ shift times
    • Allocating shifts that start and finish around peak travel times to workers who can walk or cycle to and from work Consolidating and retiming the transportation of materials and waste to and from sites to avoid the busiest times of day on the road
  • Boris Johnson has revealed a series of reforms to planning rules as part of a COVID-19 recovery plan. The new rules will come into force in September and include reforms to the planning system and a series of deregulatory proposals. Measures set to come into force from September include builders no longer needing to submit planning applications in order to demolish and rebuild vacant and redundant residential or commercial buildings, if they are rebuilt as homes. A wide range of commercial buildings will also be allowed to be converted into residential buildings without planning permission. However, the more radical proposals are likely to be reserved for a July planning policy paper.
  • Despite pushing back publication of the revised National Infrastructure Strategy to autumn 2020, the UK Government has said that it will bring forward £5bn of planned spending to accelerate key infrastructure pipeline projects across the country. Under Boris Johnson’s “New Deal”, £900m will be used for local, shovel-ready schemes this year and in 2021. Although not new money, the decision to speed up investment has been largely welcomed by the industry with some saying the scheme will help reintroduce confidence, accelerate recovery and protect jobs.
  • The IHS Markit/CIPS UK Construction PMI jumped to 55.3 in June 2020 from 28.9 in the previous month, easily beating the market consensus of 47.0. The latest reading signalled:
    • The steepest monthly increase in construction output since July 2018 due to the reopening of the supply chain following stoppages and business closures
    • Residential construction work expanded the most in almost five years month-on-month
    • Both commercial work and civil engineering activity also returned to growth
    • Purchasing activity rose at the fastest rate since December 2015
    • New business volumes increased marginally amid ongoing hesitancy among clients and longer lead-times to secure new contracts
    • Employment continued to fall Business confidence remained historically subdued but climbed to its highest since February 2020
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  • A recent trading update from Kier suggested that the firm may need to raise additional capital to bolster its balance sheet as its net debt increased from £395 to £440m for the year to June 2020. The firm said that COVID-19 was to blame for the increased debt and that the reduction in the Group’s revenue due to COVID-19 has resulted in a lower level of working capital inflow in the period than in the equivalent period in previous years. Kier, who kept 80% of their sites open during the pandemic, is now focusing on driving on-site operational efficiencies, but warned:

“The effects of COVID-19 will continue to affect volumes and result in additional costs as the Group adapts to operating in a post-COVID-19 environment.”

  • Royal Bam has said that losses for the first six months of the year had widened to between €130m (£115m) and €150m (£133m). The firm increased its cash position in Q1 and plans cost reductions (including winding down Bam International) and initiatives in the second half of the year to improve the risk profile of the business. Bam’s interim chief executive Frans den Houter noted that the firm lost approximately 35% operational efficiency through the first two months of the crisis but that it was now getting back to 80%.
  • Shopping centre developer Intu has gone into administration with debts of £5bn after having made a loss of £2bn in 2019. The firm, one of the biggest clients for commercial projects in the construction sector, was already struggling before COVID-19 struck, having held talks in March with lenders under efforts to secure rescue funding. Intu has been unable to reach an agreement with its creditors and is now in the process of restructuring – a challenging task given its complex ownership structure. According to Mike Prew, an analyst at Jefferies, Intu’s problems stemmed from:

“...an overly complicated structure, a lack of disclosure about the debt and a management that significantly underestimated the Amazon effect.”

  • The Costain/Skanska joint venture (CSJV) working on the Crossrail Bond Street station project has split after a COVID-19 review. Crossrail said the mutual decision was made “due to the volume of work remaining and the number of people required on site to complete the station” in a post-COVID world. The problem job is the only one of ten central London Crossrail stations that is not yet ready for the trial running of trains. Continued productivity issues on the site have seen it lag behind other stations.


  • EN+, the hydropower-to-metals group formerly controlled by Russian oligarch Oleg Deripaska, has called on the EU to eliminate tariffs on low-carbon imports of aluminium. EN+ claims its products (such as “green aluminium”) are low-carbon because most of its smelters in Russia are hydro-powered and could help the EU meet its climate goals. Europe is currently heavily reliant on imported high-carbon metals, importing roughly 6m tonnes of aluminium last year that attract import duties ranging from 3-6%. Adair Turner, chair of the Energy Transitions Commission, has said we will need to use trade policy levers to favour low-carbon production.
  • June’s UK construction PMI survey noted that severe supply chain disruptions continued in the month, reflecting stronger demand for construction inputs and ongoing reports of constrained materials availability (particularly plaster). This resulted in another rise in purchasing costs, with the rate of inflation accelerating to its highest since the start of 2020.


  • A survey by Make UK has found that almost three-quarters of UK manufacturers are preparing to cut jobs in the next six months as the Government’s furlough scheme begins to wind down. Executives said they were already shifting from using the furlough scheme to pay their workers to starting redundancy programmes given worries that demand will remain subdued for some time. A separate Bank of England survey revealed that UK businesses expect sales to be 26% below normal levels in the next three months – an improvement from the 38% estimated contraction in Q2 sales, but the figure still points to job losses as businesses struggle with reduced revenues.
  • UK Chancellor Rishi Sunak’s summer statement later this week is expected to focus on job retention schemes over fiscal stimulus and big tax cuts to boost the economy. It is anticipated that the statement will mark a shift in strategy from a support phase to a stimulus phase, where households are encouraged to resume normal spending. If there are positive signs that pent-up demand is being released it may indicate that less fiscal stimulus is required.
  • Bank of England’s chief economist Andy Haldane has said that the recovery is “so far, so V [shaped]”. He emphasised the UK economy is recovering much faster from the lockdown than the BoE had expected, casting doubt on the need for further stimulus. After looking at real-time indicators, he said that while there was still a risk that economic events would turn out badly, pumping more money into the economy was unnecessary because the “upside news on demand had outweighed the other negative news on the outlook”.

Global Economy

  • Eurozone retail sales rose by a record 17.8% in May compared to the previous month. Whilst consumer spending was still 5% below the same month last year, the figures released by Eurostat add to hopes that the lifting of the restrictions imposed to contain the spread of the pandemic could unleash a flurry of pent-up purchases — aided by help and incentive programmes from European governments. However, although consumption is picking up, industrial production is taking longer to find its feet.
  • In an effort to address the asymmetry in market access, Brussels has said that negotiations with Beijing on an investment treaty are entering a “critical stage”, warning that it is readying new instruments to restrict Chinese investment into Europe unless China agrees to level the playing field on trade. The treaty will address the issues related to state-owned enterprises, subsidies and forced technology transfer and will aim to secure the same protections that were outlined for the US in its “phase-one” deal with China in January.
  • The jobless rate in the US fell from 13.3% in May to 11.1% in June as the economic rebound from the initial coronavirus shock gathered pace last month before lockdowns began to be reimposed. Despite a recent spike in infections prompting several large states to restore restrictions on activity, the US has now clawed back only 7.5m of the 22m jobs lost since March. Although Federal Reserve officials acknowledged the job data showed an earlier-than-expected bounceback, it re-emphasised that the US economy faces a long road to a full recovery.

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