MARKET RESEARCH BULLETIN

CONSTRUCTION

1. The IHS Markit/ CIPS UK Construction PMI fell to 45.0 in August from 45.3 in the previous month. This is the fourth consecutive month of contraction in the sector with August’s PMI reading coming in slightly below market expectations of 45.9:

• Sharpest reduction in new work since March 2009

• Commercial continues to be the worst performing sub-sector, fuelled by high competition for new work and reluctant clients putting off committing to contracts

• Input buying decreased for the fifth consecutive month and input cost inflation moderated

• Business optimism was the weakest since December 2008 – close to the lows seen in the previous recession

IHS Markit/CIPS UK Construction PMI

SOURCE: IHS MARKIT/ CIPS

2. The Chancellor promised an “infrastructure spending revolution” in a parliamentary spending round statement last week. Whilst more details will be announced in the National Infrastructure Strategy later this autumn, it was announced that there would be an extra £13.8bn in public

spending for 2020-21. Sajid Javid said:

“The first priority of our new economic plan will be to rebuild our national infrastructure... From the motor highway to the information superhighway, we’ll settle for nothing less than an infrastructure revolution.”

3. The Government has admitted that completion of HS2 rail could be delayed by up to seven years and cannot be delivered for its original budget of £55.7bn at 2015 prices. Instead, the chairman of HS2 Ltd, Allan Cook, calculated that the project now needs £72-78bn (in 2015 prices) or £81bn-£88bn at today’s prices. The disclosures will add to mounting questions over the future of HS2, which could still be cancelled following a government commissioned review.

4. RIBA has warned that the number of architectural practices looking to hire permanent staff has tumbled to a two-year low. Its Future Trends Staffing Index fell five points in July to -3 (where any figure below zero means practices are expecting to employ fewer permanent staff in the next three months). Its workload index also fell in July with many noting that commissions were coming in less frequently as projects are put on hold due to unease over the possibility of a no-deal Brexit.

5. The latest state of trade survey conducted by the Construction Employers Federation of Northern Ireland for H1 2019 found that only 35% of construction companies are now at full or almost full capacity. This is down from 75% when the survey was last conducted just six months ago. Brexit uncertainty and more than two-and-a-half years with no regional government are taking their toll on the economy, causing construction work to dry up.

6. New UK Government regulations will make details on how councils spend developers’ money open to public scrutiny. Under new transparency rules councils will have to publish Community Infrastructure Levy spending (CIL) details, showing how every pound of property developers’ cash is spent on new infrastructure in the area.

1. The so-called “rebel alliance” of MPs inflicted a Commons defeat on Prime Minister Boris Johnson last Tuesday, as a total of 21 Tory MP’s defied Mr Johnson and backed moves to pass an emergency law intended to put a stop to a no-deal Brexit. The key vote was lost by 328 to 301, leading Mr Johnson to put MPs on notice that he was ready to legislate to hold a snap general election in October.

2. UK services activity fell more than expected in August 2019,

increasing the possibility that the country is slipping into recession. The UK services PMI dropped to 50.6 in August from 51.4 in the previous month. Respondents to the survey said Brexit-related uncertainty had led to slower growth in business intakes, stalling export orders and sluggish corporate spending.

3. The Chancellor Sajid Javid has agreed to align the “flawed” RPI measure of inflation with the ONS’s favoured CPIH (Consumer Prices Index including owner occupiers’ housing costs) measure of inflation, which is roughly one percentage point lower every year than the RPI. However, for at least the next five years government index-linked bonds, student loans and rail fares will all continue to be increased by using the excessively high RPI measure of inflation.

4. A further £2bn will be committed to fund Brexit Preparations in the Government’s spending review. The money will be used on projects to help smooth Brexit delivery. Since the EU referendum the Treasury has committed a total of £8.3bn for Brexit planning and delivery.

5. UK manufacturing activity contracted in August for the fourth consecutive month. The IHS Markit purchasing managers’ index for manufacturing fell to 47.4 in August from 48 in July as companies scaled back production in response to the steepest drop in new order intakes since mid-2012.

UK ECONOMY

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9TH SEPTEMBER 2019

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MARKET RESEARCH BULLETIN

1. France will start trials from mid-September of an electronic customs system for freight crossing the Channel. The French system would allow companies to fill out an online declaration of goods heading for the UK before the trucks set off. This would generate documentation, including bar codes, that would feed into the electronic customs system and combine with number plate recognition technology. The plan is to test the system in Calais ahead of a possible no-deal on 31st October.

2. China’s currency dropped 2.8% against the dollar in August 2019 – its biggest monthly fall in more than 25 years. Beijing allowed the currency, which it controls through a managed float, to fall in order to make its exports more competitive and soften the impact of increased US tariffs which have expanded to cover virtually all goods imported from China.

3. Figures from the Rhodium Group show that despite the ongoing trade war between Beijing and Washington, US investment in China grew in 2019. US companies invested $6.8bn into China in H1 2019 – up 1.5% from the average during the same period over the past two years. Most of the US investment came from multi-year construction projects.

4. Christine Lagarde, president-elect of the European Central Bank, has called on European governments to co-operate more closely over fiscal policy in order to stimulate the struggling eurozone economy. She urged richer governments with low deficits to bolster their crisis-fighting capacities by spending on improving infrastructure during downturns.

1. Nickel hit a five year high of $18,785 a tonne last week as its advance continued after Indonesia (the world’s second largest exporter of nickel ore) said it would halt exports in 2020 whilst it steps up efforts to build a local smelting

industry. The move would leave a hole of around 100,000 tonnes per annum in the market for the next couple of years with Goldman Sachs analysts saying the price of nickel could rise to $20,000 a tonne over the next three months as a result of the ban.

2. Copper – the bellwether of the global economy - has fallen to its lowest level since mid-2017. The metal has fallen 14% since late April and coincides with a stronger US dollar (which makes commodities more expensive for buyers using other currencies) and the ongoing US-China trade war.

3. Brickability Group PLC, which sells over 300 million bricks a year, raised £57m in its AIM IPO on 29th August. Chief Executive Officer of the 25-year-old firm, Alan Simpson, said:

“The move to AIM and the additional funding will allow us to continue our growth trajectory through further organic growth and through accretive bolt-on acquisitions”

Its chairman, John Richards, also noted that housebuilding

activity is still strong, completions are at record levels and that order books are also strong.

4. 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:

ANNOUNCEMENTS IN THE CONSTRUCTION PRESS

1. Barratt, who recently announced a record annual pre-tax profit of £910m from a £4.8bn turnover in the year to 30th June 2019, said that is has beaten a self-imposed target for the use of modern methods of construction (MMC). The housebuilder revealed that 20% of its homes were built using MMC, meeting its original target a year ahead of schedule. Its new target is to use MMC to build 25% of their homes by 2025.

2. Barratt has also revealed that 90% of its housebuilding materials were manufactured or assembled in the UK and that it has fixed price agreements in place for all of these

materials to December 2019, and 65% of them to June 2020. However, the firm said that medium-term economic outlook will depend on the manner of the UK’s departure from the EU.

3. Arguing against suggestions of moving HS2’s London terminus, HS2’s Euston programme director Rob Carr has said that ending the line at Old Oak Common (rather than Euston) would add a two-year design delay to the schedule and could potentially cost billions.

4. Chief executive of Mace believes that the firm’s turnover will dip “quite a bit” this year compared to the previous year (£2.34bn year ended 31st December 2018). Mace anticipates a drop in turnover in London and the South East. He said that:

“[Clients are] all more cautious with the Brexit effect. Brexit for us is a short-term hit in the first instance. The movement of goods is the biggest risk. It can hit you on projects, with higher prelims, and delays and potentially damages.

5. Plans for a £25m inland surf park in Coleshill, Warwickshire have gone in for planning. The 15-acre site will include a 5.3 acre artificial lagoon that seeks to replicate aspects of a coral reef, with the wave generator expected to create surf up to 2m. The plans also include a heated outdoor pool, surf school, a track for electric skateboards as well as a café and restaurant. The development is aiming to use renewable energy and low carbon technologies to keep environmental impact to a minimum.

5. Osborne + Co has been granted planning permission by Glasgow City Council to build a £140m commercial office scheme in its International Financial Services District. The project is the city’s biggest office development in more than a decade and will provide 270,000 sq ft of Grade A space across 14 floors. The development will house up to 3,000 employees and will be one of the most sustainable offices in Scotland targeting BREEAM Excellent, WELL Certified and Wired Score Platinum. G&T is providing Project Management services on the scheme.

WORLD NEWS

If you have any questions or have some news/information to contribute to the bulletin, please contact m.urie@gardiner.com, or n.rowe@gardiner.com.

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9TH SEPTEMBER 2019

COMMODITIES & MATERIALS