NEWS EXTRA
NEWS EXTRA CONFERENCE
A MIXED ECONOMIC PICTURE
The Construction Products Association’s economics director, Dr Noble Francis looked at the state of the UK economy as it affects the construction and building materials sectors.
DR NOBEL FRANCIES told delegates that the UK economy has been flatlining, with the caveat that - although technically speaking the UK entered recession - which is 2 consecutive quarters of declining GDP, at the end of Q4 2023, Q3 last year was -0.1% so the margins are quite slight.
“The first quarter of this year, GDP rose by 0.6%, so we are starting to see some significant growth, not wonderful, but still positive,” he said. “Also inflation continues to slow. The government made a big play about this, and it is still higher than the Bank of England’s target of 2%, but it had still fallen albeit from a very high base after those energy and commodity price spikes.”
Dr Francis explained that the reason inflation is important critically is because it needs to slow further before the Bank will cut interest rates, still currently at 5.25%.
“The financial markets were very optimistic about this happening soon, at the beginning of this year, but that was probably too optimistic, as most were expecting them to have started to come down by May. The Bank was very cautious about raising interest rates in the beginning, and and it remains very cautious about when to cut them,” he said, adding that there is a firmer expectation that, in the second half of this year, there will be two or three cuts, though even then they will remain high compared to what they were up until October 2021.
There are positive and negative things affecting the UK economy. The National Insurance cuts in the Budget will mean that households have a bit more income; the rising National Living Wage also benefits some of those poorer households. “Critically, though, those two will only help if consumers feel confident enough to spend, so consumer confidence is going to be vital.” Dr Francis explained that, usually, forthcoming general elections don’t tend to have much of an impact, although the extra stability and certainly that might come from
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one party gaining a large majority can boost confidence, which, allied to wage growth, could mean economic growth. There’s always a potential negative side tough, and he points out that unemployment rose marginally last year, but that it is still expected to remain low. “A bigger constraint to spending may be the 1.5m homeowners who are going to be coming off fixed rate mortgages, and onto higher rates.” In terms of construction volumes, Dr Francis says that the first quarter of 2023 wasn’t too bad, but that things tailed off very much in the second half of the year, most notably in Q4 There has then been a 5% drop in private housing output this year, the majority of it in Q1 compared with Q1 last year, though he points out that a lot of that was artificially affected by the persistent rain. “Housebuilders are starting to be a little more optimistic,” he said. “They are starting to see property transactions moving, mortgage approvals rising since the start of the year, and that means housebuilders are preparing for interest rates to fall and the subsequent impact on mortgage rates to come through. Housebuilders are, he reported, starting to buy land again, always a good early indicator of their immediate levels of confidence. “Private housing RMI saw a 4% fall in volume but we are forecasting to get a pick up after about January and February this year it’s not going to be a great pick up but it is a pick up never the less. Larger project work is still falling off, though there some areas are still growing: especially insulation and energy efficiency items, solar voltaic for example. That saw great growth in the last two years, and will continue strong in the short term and medium term.” He added that the housing associations and local authorities are financially constrained, so are not going to be building much new, however they are going to be focused very much on three key areas, decarbonisation, cladding remediation and improving basic living conditions.
“None of the CEOs want to be on the front page of the newspapers named and shamed by Michael Gove.
Infrastructure is expected to remain static but at a high level due to major projects and frameworks, Industrial is forecast to see a 7-4% fall but that is from super-high levels”. Looking forward to next year, there is likely to be degree of post-election stability politically. “We’re expecting that next year we will have volume growth in construction output of 2.1%. It’s not going to get back to levels of housebuilding in 2021-2022 for a long time but it is significant growth nevertheless. Then, in private housing RMI you’ve got 3% growth, linked to rising property transactions, more homes - after around six months post property transaction you usually start to see RMI activity.”
He said that building materials inflation is slowing, although prices do remain high overall, and that the skills shortage is another risk to output. “UK construction has lost 347,000 workers in the last five years, some of them EU workers, but primarily older workers, so a key question for the long term is, if government has plans for 300,000 homes, and for retro fitting the homes that need effciciency improvements, just who is going to do that work?
“In the year to February we lost 3380 contractors, the highest number of firms to have filed since the financial crisis. The majority of those are not the large contractors they are smaller specialist contractors, good people who we are losing from the industry.
“To summarise, private new housebuilding is going to start improving, but activity levels are still low. RM&I is also still difficult ,but it is a very mixed picture.
“My key concern goes back to skills and labour: in the short term, bearing in mind those contractor insolvencies, and in the medium term, given all the grand plans and what we need to be doing, who’s going to be doing all that work?” BMJ
www.buildersmerchantsjournal.net July 2024
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