CONSTRUCTION

1. RIBA’s latest Future Trends survey has revealed that 14% of London-based architects believe they will not survive the pandemic – double the nationwide figure of 7%. The majority of surveyed firms (70%) expect falls to their bottom line but in an early sign of returning confidence and workload, the survey’s workload index rose to -17 in June after dropping to -49 in May and an all-time low of -92 in April. Sharp rises in new enquiries (particularly in the residential sector) were also reported.

2. According to data from HMRC, building firms have claimed almost 10% of the total £26.5bn that the Government paid out through the job retention scheme as of 30th June. In total, only three sectors claimed more than construction – manufacturing (12.6%), wholesale & retail (19.9%), and accommodation & food services (15.6%). Construction’s take-up rate of the job retention scheme was 59% across the UK as a whole, representing 752,000 furloughed employees. The take-up rates for both Scotland and NI were significantly higher at 72% and 70% respectively.

3. Output in the construction sector saw an 8.2% monthly expansion in May 2020, reflecting the easing of lockdown restrictions on 11th May and encouragement from the Government for the sector to return to work. According to the ONS, nearly all sub-sectors rose on a monthly basis with only public new work (excluding infrastructure) and public repair and maintenance work output lower than the preceding month. New housing and infrastructure growth were the main drivers of the recovery in monthly output. However, despite the monthly increase, construction output was still 39% below February’s level. Output in the three months to May 2020 was also 29.8% lower than the previous three-month period indicating the sector recovery is likely to take several months.

COMMODITIES & MATERIALS

1. Anglo-Australian mining group Rio Tinto flagged a sustained recovery in Chinese demand for iron ore but noted that in the US, Europe and Japan, sales remain weak. High demand in China is a result of ramped-up infrastructure spending to combat the pandemic’s economic impact but in a trading update the company said that a “meaningful” recovery had yet to start in Europe and Japan and was likely to be “subdued when it does”. Iron ore has risen 20% so far in 2020 – the best performance of any major commodity - because of strong demand from mills in China, which produced 500m tonnes of steel in the first half of 2020.

2. The price of EU carbon credits - regulatory allowances for carbon emissions that can be bought and sold by companies – rose by 5% last Monday to its highest level in 14 years. Traders anticipate that politicians’ promises of a “green recovery” will increase demand for the instruments. Although sold off in March as global lockdowns reduced energy demand, they have now more than doubled in price since then. The rise could be seen as an encouraging sign that traders expect industrial production and economic activity (and hence carbon emissions) will soon return to pre-pandemic levels.

3. Biohm, a sustainable bio-material construction company, has launched a £1.25m funding drive to help increase production in a bid to move away from fossil fuel-powered construction materials and create a circular economy. The company plans to use commercial and local-authority waste as raw materials for its bio-manufactured products in order to help reduce CO2 emissions. The construction of the materials is due to start production in September, supplying 20 homes a month, rising to 120 further down the line. The factory will be producing mycelium insulation panels made from mushroom roots and semi-structural construction panels produced from food waste such as orange peel.

GLOBAL ECONOMY

1. The World Bank has said that, on average, emerging and developing economies have announced support packages worth 5.4% of GDP and in some countries, such as India and South Africa, pandemic-related public spending has topped 10% of GDP. It noted that some of these countries (particularly tourism-dependent economies and big commodity producers) are set to face a fiscal crisis in the coming years unless they can roll back huge increases in public spending enacted in response to the COVID-19 pandemic. With soaring budget deficits they face the risk of public unrest by cutting back on spending, or negotiating with investors to restructure their debts.

2. In one of the world’s earliest signs of recovery from the fallout of the pandemic, Chinese GDP grew 3.2% in Q2 2020 compared with the same period last year. It follows a 6.8% decline in Q1 but the recent data still shows a mixed recovery. Whilst the country’s industrial sector has seen strong growth (driven by fiscal stimulus) consumption remains weak, signalling an uneven recovery.

3. According to a recent European Central Bank survey, banks plan to cut back on the flow of credit to eurozone businesses this summer in anticipation of governments winding down their loan guarantee schemes. Lenders expect “a considerable net tightening of credit standards on loans to enterprises” in Q3 2020. Cheap government-guaranteed loans to struggling businesses have fuelled demand for loans which hit a record high in Q2. However, if lending dries up this could deal a fresh blow to jobs in the second half of the year.

CONTRACTOR NEWS1. In a recent trading update ahead of its annual results, Galliford Try has said that operating margins

are expected to show a loss of circa 5% in the financial year to June 2020. It said:

“...the combination of site closures and reduced productivity significantly reduced revenue in the final quarter of the financial year. Along with the cost of implementing our new operating procedures and lengthened site programmes, this has led to a material reduction in gross margin...”

Galliford Try also noted that the majority of furloughed employees have now returned to work and that its order book was up 10% at £3.2bn (2019: £2.9bn) with 90% of revenue for the new financial year secured (2019: 88%) and that there was an encouraging pipeline in its chosen sectors.

2. Specialist contractor Keltbray is on track to cut overheads by 16.4% this year as it sets it sights on achieving industry-leading cost efficiencies. Last month the company said it would target 300 redundancies from around 2,000 staff as it reshapes itself for a tougher year of trading. Keltbray plans to complete its redundancy programme by the end of August but Chairman Brendan Kerr said it would continue to review the over-head run rate to ensure it met target when the business returns to full operational capacity.

3. Build UK has criticised some larger contractors for returning to poor payment practices and also for applying price pressure to firms further down the supply chain. In a recent update the trade body said:

“It is extremely disappointing to receive evidence that some companies are reverting to bad habits and squeezing their supply chains, rather than taking the opportunity to revolutionise the way in which construction projects are delivered.”

Echoing the words of CLC chairman Andy Mitchell that the sector’s long-term resilience depends on working collaboratively, Build UK said that every firm had a responsibility to ensure cash continued to flow throughout the industry.

4. Homes England contractor spend has revealed that more money has been spent with John Sisk & Son than any other single contractor. In 2019/20, Sisk accounted for almost half of all the government agency’s spending with construction companies, earning £16.2m, or 43%, of its total. Sisk also topped the agency’s table of spending in 2018/19 as well. The data also revealed that total affordable housing starts were up by 17% in 2019/20 compared to the previous 12-month period. This was largely due to a 91% annual increase in the number of ‘Social Rent’ starts following the reintroduction of Social Rent as an eligible tenure for grant funding by the government, which took effect in July 2018.

COVID-19:CONSTRUCTION

UPDATE22nd July 2020

#KeepConstructionThriving

Construction Output: Volume Seasonally Adjusted

£ (m

illio

n)

May 20Mar 20Jan 20 Apr 20Feb 20Dec 19

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Private New Housing Infrastructure Public Housing (R&M)

Private Commercial New Work Private Housing (R&M) Public New Housing

Non Housing R&M Public New Work Private Industrial New Work

Source: ONS

4. The UK Government has announced the biggest overhaul to building safety regulations for nearly 40 years by publishing the 334-page Draft Building Safety Bill. The Bill will improve regulations as the Government seeks to bring forward a clearer system with resident safety at the heart of it. Residents have helped develop the safety proposals and under the new laws those living in high rise buildings will be empowered to challenge inaction from their building owner. The new laws will also see a Building Safety Regulator established to enforce a much more stringent set of safety rules for all buildings higher than 18m or six storeys from the design phase right through to occupation.

5. The Construction Leadership Council (CLC) has published v.5 of its Site Operating Procedures to reflect the recent easing of lockdown measures. The latest ‘one metre plus’ social distancing guidelines require workers to stay two metres apart, or one metre with risk mitigation where two metres is not viable, and it is expected that sites will maintain the social distancing measures in place. Other changes are minimal but include:

– Updates to the ‘When to Travel to Work’ section

– The latest peak times for public transport

– Entry systems to be regularly cleaned rather than between each use

– Drivers to have access to welfare facilities

– Canteens that have been closed or offered a restricted service may now re-open

6. The Chancellor’s Summer Statement announced a raft of new measures to help the economy and save jobs. Construction is likely to benefit from the Talent Retention Scheme which will redeploy displaced workers and also a £3bn boost to ‘green construction jobs’ (£2bn in grants for homeowners carrying out energy-efficient refits, £1bn to decarbonise public buildings such as schools and hospitals). A temporary rise to the Stamp Duty threshold (to £500,000) has also been implemented which will help kick-start the housing market.

UK ECONOMY

1. The OBR’S fiscal sustainability report – July 2020 has updated its central economic scenario upon which it will base its assessment of the outlook for public finances. Under its tick-shaped central scenario, the OBR forecasts that output will recover more slowly, regaining its pre-virus peak by the end of 2022. Cumulative business investment will be 6% lower than in the March 2020 forecast over five years, while unemployment and business failures remain elevated. Real GDP is 3% lower in the first quarter of 2025 than in our March forecast.

2. The UK economy posted a “disappointing” 1.8% increase in output in May after April’s historic plunge. Economists polled by Reuters were expecting a monthly growth rate of 5.5% in May and the latest figures point to a longer-than-expected recovery to pre-crisis levels. The monthly increase in GDP was small compared with the 20.3% plunge registered in April. As a result, in May the UK economy was still 24.5% smaller than in February 2020. As a result of the weak economic data, sterling fell and UK Government bonds yields dropped further.

3. The CBI’s round-up of its June surveys indicate that whilst it’s too early to call time on the economic downturn, new data sources give grounds for optimism. The ONS’ new business survey along with new high-frequency indicators such as credit card transaction data, measures of online traffic and high-street footfall, suggest the recovery has been “sooner and faster than expected”. However, the CBI’s briefing noted that if redundancies spike after the furlough scheme starts to unwind in August, this could dampen incomes and new-found spending confidence.

Real GDP scenarios versus March 2020 forecast

Q4

2019

= 1

00

2019 2020 2021 2022 2023 2024 2025Q1 Q3Q2 Q4 Q1 Q3Q2 Q4 Q2 Q4Q3Q1Q1 Q3Q2 Q4 Q2 Q4Q3Q1Q1 Q3Q2 Q4 Q1

115

110

105

100

95

90

85

80

75

Source: ONS, OBR

Scenario Period

March Forecast Central Scenario

Upside Scenario Downside Scenario