UK, February 14, 2018.- I have the great fortune of being Managing Director of Doka UK and Doka Ireland. Doka is a multinational company specializing in formwork solutions for large infrastructures, for decades. For this reason, I need reliable information on trends and forecasts on the construction sector in the UK. And sometimes it’s not easy, because there are unforeseen variables, there are unexpected news that can change business prospects. Below I summarize the information that I was able to read in generic media, and specialized in construction. Perhaps the present has already passed, but perhaps we can find some light for the horizon of the coming months.
More than 150,000 UK construction jobs are set to be created over the next five years despite Brexit uncertainty and Carillion’s collapse, according to a new report. The Construction Industry Training Board (CITB) predicts 15,350 carpenters and 9,350 labourers will be needed as more homes are built. The strongest job growth in the sector is expected to be in a range of professional and managerial roles as the industry seeks to boost its productivity. It forecasts that average output in construction will grow 1.3 per cent annually, with 158,000 jobs created over five years. Infrastructure remains the strongest sector, with an annual growth of 3.1 per cent, with housing output also expected to grow. In contrast, commercial building is expected to stagnate over the next five years, as investors hold back decisions due uncertainty about the impact of leaving the EU. The CITB predicts employment will grow for the fourth consecutive year at 0.5 per cent a year on average to 2022. That would equate to 2.77 million people working in construction, slightly below the peak reached in 2008. CITB Policy Director Steve Radley said: “Despite all the gloom around Carillion and uncertainty from Brexit, our report’s message is that construction will continue to grow and create more jobs. “Though growth is slightly down on 2017, it’s looking more balanced with housing and infrastructure both expanding significantly. And the range of job opportunities is growing. While we need to bring in lots of people in the trades, the fastest growth will be for professionals at 7.8 per cent and for managers and supervisors at 5.6 per cent. “By 2022, employment will be in touching distance of the heady 2008 peak so we face a massive recruitment and training challenge, which is likely to get harder after Brexit. So while we can take some comfort from weathering the recent storms, it’s vital that we make the investment in skills today that will shape our own destiny for tomorrow.”The report reveals a mixed picture across UK regions with Wales seeing 4.6 per cent annual output growth and Scotland predicted to remain flat.
In Northern Ireland, annual growth is down from last year’s 1.6 per cent forecast to 0.5 per cent – this is largely attributable to a slackening of the commercial sector. The report comes after data on Friday indicated the building industry fell into stagnation in January on the back of a slump in house-building. The Purchasing Managers’ Index (PMI) for construction came in at 50.2 in the month, down from 52.2 previously and just barely above the 50 mark that separates growth from contraction
The Bank of England has indicated that the pace of interest rate increases could accelerate if the economy remains on its current track.Bank policymakers voted unanimously to keep interest rates on hold at 0.5% at their latest meeting.
However, they said rates would need to rise “earlier” and by a “somewhat greater extent” than they thought at their last review in November.Economists think the next rate rise could come as soon as May.
The value of the pound jumped by about 1% against both the dollar and the euro in reaction to the Bank’s comments.
Higher interest rates have an important effect on households and the economy. Around 8.1 million UK households have a mortgage, and of those almost half are on either a standard variable rate or a tracker rate.
Interest rates on those types of mortgages would be likely to match any increase in official rates made by the Bank of England.But for savers a move higher by the Bank of England could be a bonus, as High Street banks generally have to raise their rates of interest. In November, the Bank raised the cost of borrowing for the first time in more than 10 years – from 0.25% to 0.5%.
Its forecasts at the time indicated there could be two more increases of 0.25% over three years.
But it now appears there could be a third increase and those rises could be sooner than expected.
“The Committee judges that… monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November report,” minutes from the Monetary Policy Committee’s (MPC) meeting said.
The Bank noted that the global economy was expanding at the fastest pace in seven years and that the UK was benefiting from that growth. It also thinks that UK wage growth will start to pick up, giving the economy a further boost. As a result, the Bank has raised its growth forecast for the UK economy to 1.7% this year, from its previous forecast of 1.5% made in November.
But it says its forecasts are based on a “smooth” adjustment to Britain’s departure from the European Union.
Together, these deals cover countries that receive around 16% of Britain’s exports and send 6% of its imports. The British government wants to keep all of them, and insists that doing so is no more than a technical exercise. But rolling over deals that together took more than 75 years to negotiate will not be easy. As the clock ticks, the government may be forced to prioritise. Size matters, and after the EU, Britain’s top five export partners with which it has trade deals are Switzerland, Japan, Canada, Singapore and South Korea (see chart). Agreements with economic tiddlers like Algeria, Georgia or Tunisia might be of political importance, but their lapsing would only squeeze a few British exporters.
Large trade flows could be the result of a deep, trade-boosting deal. Alternatively, they could arise from a shallow deal with a big country that would trade a lot with Britain even without it. Michael Gasiorek and Peter Holmes of the UK Trade Policy Observatory at Sussex University have calculated that only four of Norway’s top 100 goods imported from Britain would face tariffs in the absence of a deal, compared with 67 of Turkey’s. On that crude measure, the latter would seem more important.
However, researchers have constructed a broader measure of depth, as part of the Design of Trade Agreements project attached to the World Trade Institute, based in Bern. They tot up a maximum of seven key features of a trade deal, including whether it contains tariff cuts; services liberalisation; investment rules; recognition of standards; liberalisation of public procurement; rules on competition; and intellectual-property rights. Based on that metric, deeper deals with Canada, South Korea and Vietnam would be worse to lose than shallower ones such as that with Turkey, whose deal with the EU excludes services.
If British businesses are not exactly banging down the door to preserve these deals, says Allie Renison of the Institute of Directors, a business lobby group, it is partly because they think that the British government should prioritise its deal with the EU. Some sectors are concerned about particular deals beyond that. Carmakers, for example, rely on sending car parts to and from Turkey under the customs union, and saw their exports to South Korea more than triple in value in the five years after the deal was applied in 2011. Chemicals exporters, which account for a little under 10% of exports to the EU’s partners, are keen to keep Britain’s arrangements with Switzerland and South Korea.
No process will be as straightforward as simply replacing references to the EU with ones to Britain. The arrangements Britain wants to translate refer to European law and European content requirements. Negotiating partners will justifiably grumble if they find themselves having to adhere to two sets of standards, or if their car parts get hit with new tariffs because finished cars no longer contain enough content from the deal’s co-signatories.
Britain’s trade negotiators may choose to prioritise deals that are easier to agree. All will be difficult without knowing what Britain’s final relationship with the EU will be. Depending on what that is, the trickiest set to inherit may be the ones with the EU’s closest trading partners, like Switzerland and Norway. Their arrangements are “living deals”, which secure access to many areas of the EU’s market by sticking tightly to its rules. Keeping close trade ties with them will mean sticking close to the EU too.
For now, the British government seems confident that it will not have to choose. On January 24th Greg Hands, the international-trade minister, reassured the trade select committee that of the 70 nations with which the government had held discussions, none had any interest in erecting new trade barriers. But between now and March 2019, plenty could go wrong.
Factories across the globe got off to a strong start this year, with manufacturing activity in most countries gaining momentum and hitting multi-year highs. Business surveys from Europe and Asia showed solid activity and output, reinforcing expectations for another year of synchronized global expansion that has propelled many world stock markets to or close to record highs.
Last year, the euro zone economy was a surprise global star and any signs that zip, alongside rising price pressures, has carried into this year will be welcomed by the European Central Bank as it moves to unwind its super-loose monetary policy. The 19-country bloc’s booming manufacturing industry raced into 2018, churning out goods at one of the fastest monthly paces in over 20 years in January.
“The euro zone economy clearly has a tailwind behind it. There is nothing on the immediate horizon which would make you think the economy is about to run out of steam,” said Peter Dixon, global financial economist at Commerzbank.
IHS Markit’s January final manufacturing Purchasing Managers’ Index for the euro zone was 59.6, matching an earlier preliminary reading but below December’s 60.6 – which was the highest since the survey began in June 1997. Indicating February would also be a busy month, new orders growth was at a near record pace as was employment. Firms also built up a solid backlog of work and were their most optimistic in at least 5-1/2 years.
Among the four biggest economies, PMIs were close to record highs in Germany and Italy and among the best for 17 years and a decade in France and Spain respectively. But the biggest outlier in Europe was Britain, where manufacturing lost more momentum than expected last month. Uncertainties over its path to leave the European Union next year curtailed business investment, following one of the steepest jumps in the cost of raw materials in decades.
“The UK economy looks set to grow at half the rate of the U.S. in 2018 and a full percentage point slower than the euro zone,” said James Knightley, chief international economist at ING. “It should be doing much better given the global upturn in demand and the competitive sterling exchange rate.” The UK factory PMI dropped to its lowest since June and the prospects for 2018 do not look bright.
Markets were little moved by the data. Focus will later turn to the United States, where a sister survey is expected to show solid manufacturing activity.