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UK construction sector rebounds ‘as recession fears fade’; car sales jump 26% – business live | Business : NEWSFINALE

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1 year ago

March 6, 2023

UK construction sector rebounds in February despite weak housebuilding

Just in: the UK’s construction sector rebounded back into growth last month as fears of a recession fade.

The S&P Global/CIPS UK Construction Purchasing Managers’ Index (PMI), which tracks activity in the building sector, jumped to 54.6 in February, up from 48.4 in January.

That shows the fastest growth since May 2022, and well above expectations of a reading around 49.1. Anything over 50 shows a rise in activity.

There was a “robust increase” in overall business activity across the UK construction sector last month, S&P Global reports, after two months of decline.

The rate of growth was the strongest since May 2022, supported by a marked rebound in commercial work and a positive contribution from civil engineering activity.

But, activity in the house-building sector decreased for the third month running.

Many housebuilders have been cutting back following a drop in demand, as house prices fall.

Tim Moore, economics Director at S&P Global Market Intelligence, says that housebuilding was the ‘weak spot’ in the sector:

Some firms noted that fading recession fears and an improving global economic outlook had boosted client confidence in the commercial segment. At the same time, work on major infrastructure projects such as HS2 contributed to the expansion of civil engineering activity in February.

Cutbacks to new house building projects remained the weak spot for construction sector activity, with total residential work falling for the third month running in February. Survey respondents often commented on subdued demand and a headwind from elevated interest rates.

Construction companies appear increasingly confident about the year ahead business outlook, with optimism rebounding strongly from the lows seen in the final quarter of 2022. Softer inflationary pressures and the least widespread supplier delays for just over three years were factors supporting business expectations in February.”

Key events

The chief economist of the European Central Bank has hinted that it will continue to raise interest rates beyond the hike expected this month.

In a speech this morning, Philip Lane said the ECB must take “robust” action if underlying inflation dynamics are at odds with its inflation forecasts.

Data last week showed a surprise rise in core inflation, up to 5.6%, well above expectations for a rise of 5.3%, and further from the ECB’s headline inflation target of 2%.

Headline inflation was also higher than expected, at 8.5% in February.

In a lecture at Trinity College Dublin, Lane suggested that further rate increases will be needed:

The current information on underlying inflation pressures suggests that it will be appropriate to raise rates further beyond our March meeting, while the exact calibration beyond March should reflect the information contained in the upcoming macroeconomic projections, together with the incoming data on inflation and the operation of the monetary transmission mechanism.

Lane added that lifting interest rates to a “sufficiently restrictive level”, to dampen demand and growth, will “counter-act above-target medium-term inflation pressures” and avoid inflation expectations becoming de-anchored.

It will also deter ‘excessive’ pay rises and price hikes, he added:

In particular, the dampening of demand through the tightening of monetary policy means that price setters and wage setters are on notice that excessive price and wage increases will not be sustainable.

Reuters reported last week that the ECB’s governing council has been shown evidence that European companies have been lifting their profit margins, amid fears over ‘greedflation’:

Drax strike over after power station workers secure pay increase

Strike action at the Drax power station in Yorkshire has ended after workers secured a “dramatically improved” pay offer, the Unite union has announced.

Unite says that fresh negotiations have been held after 180 workes held a day’s strike action on Monday 20 February after rejecting an 8% pay increase, below the headline rate of inflation.

Drax has now made a improved pay offer, including back pay, which Unite says is worth 16% to the lowest paid workers.

Workers have accepted this offer in a ballot. Strikes had been scheduled for later this month, and in April.

Unite general secretary Sharon Graham said:

“This was an excellent increase for Unite members at Drax, who by showing unity and standing up to their employer secured a vastly improved pay increase.

“The pay increase at Drax demonstrates how Unite’s absolute commitment to focus on jobs, pay and conditions is delivering for members.”

Citi to double Paris trading staff in post-Brexit adjustment

Investment bank Citigroup is pressing on with a post-Brexit hiring spree in Paris.

Citigroup is building a new trading floor in Paris, as part of a plan to nearly double its staff in the French city, Bloomberg reports.

The new floor in its existing building — located steps from the Avenue des Champs-Élysées and the Arc de Triomphe — will help Citigroup increase staffing for its trading division to 250 in the coming years, up from 130 currently, according to Fabio Lisanti, head of the bank’s trading business across Europe, excluding the UK.

The new floor is set to include at least 85 desks.

Citigroup is growing its Paris operation into a trading hub, having previously only had a sales presence there.

Following Brexit, Wall Street banks such as Citigroup have been adjusting their operations, under pressure to trade European assets within European Union countries.

Lisanti says London remains Citi’s main trading hub, but explains:

But we have and will move certain risk management and risk books in Europe. We’ve already moved quite a few and there’s more to go.”

Worryingly for the City of London, Lisanti says the move to Paris means it can give a better service to clients.

He says:

“We’ve been able to hire talent in Paris that we would never have been able to attract in London.

One of the things we should not forget is us moving to Paris or to Europe, there is a strong commercial reason for that. We will cover our clients better, we will create better teams, stronger teams and ultimately be able to generate revenues more effectively and efficiently.”

CBI boss Tony Danker steps aside amid allegations of misconduct

Anna Isaac

Tony Danker, the boss of the Confederation of British Industry, has stepped aside amid an investigation into complaints about his conduct, my colleague Anna Isaac reports.

The decision to hire a law firm to investigate him comes after the Guardian approached the CBI last week about a formal complaint that was made in January, as well a number of alleged informal reports of concerns over his behaviour.

The formal complaint involved a female CBI employee who it is understood claimed the director general of the business lobbying organisation made unwanted contact with her and considered this unwanted conduct to be sexual harassment.

Danker continued in his role after the formal complaint was made, representing the influential organisation in the media and at public events, most recently a CBI conference last Wednesday where the keynote speaker was the education secretary, Gillian Keegan.

The CBI confirmed it had received a formal complaint about Danker’s “workplace conduct” in January but opted not to escalate it to a disciplinary process.

“The allegation was investigated thoroughly and was dealt with comprehensively, in line with CBI procedure,” said CBI president Brian McBride.

“The CBI investigation determined that the issue did not require escalation to a disciplinary process.”

After the Guardian inquired on Thursday about the formal complaint and raised several additional allegations about his behaviour towards other members of staff, including concern that the director general had been viewing employees’ personal Instagram profiles, the CBI said it had started an independent investigation and that Danker had asked to step aside during it.

It has hired Joanna Chatterton, head of the employment law at Fox Williams, to lead the investigation. Matthew Fell, the CBI’s chief UK policy director, has replaced Danker on an interim basis.

Here’s the full story:

Back in the eurozone, retail spending was weaker than expected at the start of this year.

Eurostat data shows that retail sales rose by 0.3% month-on-month in January, but were 2.3% lowe than a year before.

Economists had expected a 1.0% month-on-month rise, and a 1.8% year-on-year fall, Reuters says.

It suggests that high inflation, and the squeeze from higher borrowing costs, continues to weigh on the euro area.

The data indicates that Europe hasn’t enjoyed an economic rebound yet – with ING predicting GDP growth will be flat in the first quarter of 2023.

ING economist Bert Colijn says:

This is a weak start to the first quarter and makes growth over the quarter a challenge. Retail sales have been on a declining trend since November 2021, but taking the latest data into account, we can see that there has been a more rapid decline since the autumn of last year.

While surveys about the first quarter have been relatively upbeat so far, these retail sales data don’t give much evidence that a rebound has started. We expect GDP growth in the first quarter to be flat, writes @BertColijn.https://t.co/MGiCgJAxxd

— ING Economics (@ING_Economics) March 6, 2023

n”,”url”:”https://twitter.com/ING_Economics/status/1632689656679522304″,”id”:”1632689656679522304″,”hasMedia”:false,”role”:”inline”,”isThirdPartyTracking”:false,”source”:”Twitter”,”elementId”:”671a6117-4305-4931-aba7-d496689cb8fa”}}”>

While surveys about the first quarter have been relatively upbeat so far, these retail sales data don’t give much evidence that a rebound has started. We expect GDP growth in the first quarter to be flat, writes @BertColijn.https://t.co/MGiCgJAxxd

— ING Economics (@ING_Economics) March 6, 2023

Thomas Pugh, economist at audit, tax and consulting firm RSM UK, fears that the UK economy will drop into recession this year, despite the pick-up in construction growth last month.

Pugh says the economy has been more resilient than expected, but suspects February’s PMI surveys may be overstating its strength.

He explains:

“The rebound in the construction PMI is more evidence of just how resilient the economy has turned out to be. But beware a false spring.

We still expect the economy to fall into a mild recession in the first half of this year and the construction industry will be hit hardest by the 400bps increase in interest rates over the last year. As such, it probably won’t be long before the construction PMI resumes its downward trend.

‘The bounce back in the construction PMI in February, to its highest level since May, follows the rebound in the services and manufacturing PMIs.

Undoubtedly, the economy has been much more resilient than expected given the cost-of-living crisis and the massive increase in interest rates. But the across the board rebound the PMIs last month should probably be taken with a pinch of salt.

IoD urges Ofgem to protect business customers

UK energy companies are failing to treat many business customers fairly, the Institute of Directors says today.

The IoD has written to industry regulator Ofgem urging them to take action to secure “a well-functioning energy market” for non-domestic customers.

The IoD survey has found that one in five (18%) businesses encountered at least one form of disadvantageous treatment by energy suppliers in the previous six months.

The most commonly reported problem was energy suppliers requesting a larger share of the bill to be paid in advance (11%). This was followed by refusal to negotiate payment terms when requested to do so (6%) and refusal to renew a contract (6%).

Jonathan Geldart, director general of the Institute of Directors, says Ofgem must heed the concerns of business customers:

At a time when energy prices are at an all-time high, it is important that the energy regulator ensures that any unnecessary burdens for businesses are removed.

The inclusion of take or pay clauses in energy supply contracts to non-domestic customers runs counter to the government’s messaging to business regarding the cost and environmental imperatives to reduce energy consumption.

It is therefore important that Ofgem identifies and recommends the actions needed to address the concerns of business energy customers.”

This morning’s surprisingly strong construction sector report is the latest sign that the risk of recession is easing, says Martin Beck, chief economic advisor to the EY ITEM Club.

Beck points out that there have been other “upbeat indicators” recently, such as rising retail sales, consumer confidence and tax receipts.

Beck says:

February’s construction Purchasing Managers’ Index (PMI) joined its services and manufacturing counterparts in signalling stronger activity in February. Although the economy continues to face significant headwinds, the risk of a recession is receding.
The near-term outlook for the construction sector remains challenging. Higher interest rates will likely weigh on residential and commercial activity, the housing market downturn and changes to planning rules risk discouraging housebuilding, and falling household real incomes are expected to discourage spending on home improvements.
However, the recent improvement in the mood-music surrounding the economy’s prospects, including some recovery in consumer and business confidence, should bolster the construction sector, as will falling energy costs and disinflationary pressures in general. As a relatively cyclical sector, construction firms could be among the first to benefit from the economic recovery that the EY ITEM Club expects to become embedded later this year.

Confidence across the UK construction sector hit its highest level in a year last month, today’s PMI report shows.

Dr John Glen, Chief Economist at the Chartered Institute of Procurement & Supply, says easing supply chain problems and a slowdown in cost inflation cheered building firms.

However, rising mortgage rates continued to dampen the housebuilding sector.

Glen explains:

“The overall figure paints a bright picture of progress in the construction sector with a robust jump in output last month. Supply deliveries were at their most improved since January 2020 and some commentators mentioned sourcing closer to home to avoid logjams in supply chains caused by China’s Covid policy and the war in Ukraine.

New order levels were also at their highest since November 2022 but these strong numbers belie the fact that there is uneven growth in building activity in the UK. Commercial and civil engineering projects dominated this performance with activity on projects such as HS2 and commercial builds. Residential building on the other hand was the odd one out with a third month in contraction as mortgages rates put a dampener on the number of house purchases and buyers were unwilling to commit.

Builders themselves remained cheerful as optimism rose sharply and almost half of the survey’s respondents believed business would improve in 2023. With the slowest inflationary rises for raw materials since November 2020 this offered some relief, and it was cheaper transportation costs that helped offset salary and energy costs which were still rising

The return to growth in the UK construction sector last month will be welcomed by contractors who are hoping the worst of the economy’s storms have passed, says Max Jones, director in Lloyds Bank’s infrastructure and construction team.

Jones explains:

“Despite an uncertain economic picture, many in the industry feel confident. Payment times are proving resilient across supply chains, pipelines on infrastructure and commercial projects are holding up well and inflation, for materials and labour, looks to have passed its peak.

“The industry will be closely monitoring this month’s Budget. While few expect the Chancellor to pull any rabbits out of his hat, clarity around future projects, particularly in the regions, will give contractors the confidence they need to plan and invest in the future.”