CONSTRUCTION UPDATE · financial year. The updated versions of the full three-year plan and also...
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CONSTRUCTION 1. The most recent UK construction output data published by the ONS has revealed a 40% (£5.1bn) drop in the value of ‘All Work’ output in April compared to the previous month. April’s output value was also 44% lower than the same month in 2019. All sectors experienced a substantial month-on-month drop in output but new housing appeared to be the worst affected, falling by more than 60%. The least affected sector was public non-housing (-14%) primarily due to work on hospitals and schools. Infrastructure (-20%) was also less affected as social distancing is easier to maintain on large sites. COMMODITIES & MATERIALS 1. The International Energy Agency (IEA) has said that drop in oil demand caused by the coronavirus pandemic will endure throughout 2021 and even beyond. In its first forecast for next year, the IEA said demand would rise by 5.7m barrels a day to 97.4m b/d. This is a rebound from the expected 8.1m b/d fall in 2020, set to be the largest drop on record. But it will still put 2021’s total demand 2.4m b/d below 2019. Neil Atkinson, head of oil markets at the IEA said: “We have to assume that oil demand doesn’t get back to around 100m b/d until some point in 2022.” 2. Builders merchants’ sales fell by 76.3% year-on-year in April according to the Builders Merchant Federation (BMF). Sectors which had the biggest falls were tools - down 90% on the same month last year, kitchens and bathrooms - down 87%, and safety and workwear which was down 60%. However John Newcomb, chief executive of the BMF said that most branches have now been reopened and that and that he expects the “picture to improve as data for the rest of Q2 becomes available.” 3. China has accelerated its dominance in global steel production. In April, whilst the UK produced less than half of 1% of the world’s steel, estimates from the World Steel Association show that China produced 62% - dwarfing every other country combined and significantly above its 54% share one year earlier. While steel mills fell quieter in Europe, the US and India, Chinese producers kept running through its COVID crisis and are producing at an even faster rate than they did last year. As Chinese mills scrambled for supplies to meet domestic demand, the price of iron ore has surged 20% over the past month to above $105 a tonne. GLOBAL ECONOMY 1. The UK has formally rejected the option to extend its post-Brexit transition beyond the end of this year. The legal deadline to request an extension to the transition period expires at the end of June but Michael Gove, Cabinet Office minister, has now formally confirmed the decision, leaving companies with just six months to prepare for potentially more restrictive trading conditions with the EU. The Government has also confirmed that it has scrapped plans to immediately introduce full import controls on EU goods in the new year. 2. The International Energy Agency (IEA) published its Sustainable Recovery Report last week, presenting world leaders with cost-effective measures that could be implemented from 2021 through to 2023. The $3 trillion green recovery plan sets out three main goals: spurring economic growth, creating jobs and building more resilient and cleaner energy systems. The report offers governments around the world a roadmap to sustainably rebuild their economies in the wake of the pandemic. Fatih Birol, executive director at the IEA, said in the report: “As they design economic recovery plans, policymakers are having to make enormously consequential decisions in a very short space of time... These decisions will shape economic and energy infrastructure for decades to come and will almost certainly determine whether the world has a chance of meeting its long-term energy and climate goals.” CONTRACTOR NEWS 1. The results of a Build UK survey conducted at the start of June 2020 to help inform the Construction Leadership Council’s planning for industry recovery have been published. The survey revealed that across the industry, 43% of respondents expect to make some redundancies and that contractors expect to lay off an average of 11.4% of their employees by September 2020. The survey also found that: – 60% of respondents are looking to take on fewer apprentices at the next intake – Across all sectors respondents currently directly employ 89% of their workers, with the remaining 11% being self-employed or agency workers – On average, 32% of direct employees are currently furloughed across all sectors – All sectors of the industry have accessed the government’s coronavirus job retention scheme at some point – There is expected to be a 7.7% reduction in the number of directly employed workers across the industry by September – Contractors are looking to reduce self-employed and agency workers by 42% by September 2. Severfield, the country’s biggest steelwork contractor, saw a 16% rise in underlying pre-tax profit to £28.6m in the year ending 31 st March 2020, putting it ahead of its strategic profit target of £26m. However, Severfield noted that it is beginning to see some schemes being put on hold as spooked clients delay jobs because of the COVID-19 crisis and is taking measures to preserve cash. Chief executive Alan Dunsmore said: “We are now seeing evidence of investment decisions being delayed in some of our sectors as clients and developers appear to be adopting a more cautious approach until greater market clarity returns. Pricing generally remains competitive.” 3. Wates has reportedly proposed a Nightingale-style plan to build temporary additional classroom space to help children get back to school. Wates’ group strategy director and education lead Steve Beechey said it would use its off-site schools system called ADAPT, which it has used on 50 sites in the past eight years, to help build the extra space schools now need because of ongoing social distancing protocols. He added that if the Department for Education gave the green light in the next few weeks, extra space could be available for the start of the new school year. 4. A spokesman from Laing O’Rourke has confirmed that its projects were on track to return to full productivity by the end of July, enabled by a direct-delivery operating model and modern methods of construction. It was noted that now, more than ever, the sector needs to modernise and improve productivity as the challenges it faces have been laid bare by the current crisis. Separately, Ray O-Rourke said recently said: “Modern Methods of Construction have been critical to continuing high-quality work with fewer people on site and our sector must now embrace this fully to maximise its contribution to the UK’s economic recovery.” 5. A recent G&T contractor survey found that productivity levels on site in England and Wales are averaging around at 70-90% of pre-COVID levels. Although site-specific, factors that are currently having the most significant impact on productivity include: – Increased idle time of workforce – Lack of workspace to social distance – Ability to get to site The survey also found that rebalancing labour density on site whilst trying to maintain productivity is proving challenging but that labour levels are inevitably closely correlated with productivity. Several respondents noted that extended hours and shift-splitting are helping to improve productivity on site, as is re-sequencing work so that more is done earlier on in the programme to avoid the typical back-end spike in activity. UK ECONOMY 1. UK consumer price inflation (CPI) dropped to a four-year low in May (0.5% year-on-year) as falling prices put downwards pressure on inflation following the shutdown of the economy. CPI has dropped from 1.5% in March to the current low and has remained under the Bank of England’s 2% target since last August. Economists expect inflation will fall further in the coming months, with some predicting a near-zero rate as shops continue to cut prices to attract wary customers as the economy reopens. 2. The Scottish Government has announced a ‘return to work’ package that allocates £78m for construction projects such as regeneration and road maintenance. The package, funded by the reallocation of underspends from schemes interrupted by COVID-19, is designed to help stimulate Scotland’s economy following the pandemic. The £78m construction spend includes £40m for regeneration projects and £20m for roads maintenance. 3. The Government has published its 2020 National Infrastructure and Construction Procurement Pipeline listing 340 procurement contracts across 269 government projects that are set to come to market in the next 12 months. Total value of the work is estimated to be between £29bn and £37bn during the 2020-21 financial year. The updated versions of the full three-year plan and also the 30-year National Infrastructure Strategy are still not ready, but the 2020 version has been published to provide the industry with short to medium-term certainty and greater visibility of where infrastructure investment is being made and by whom. 4. Provisional data from the ONS indicates that vacancies in the UK construction sector between March and May 2020 were 54.3% lower than in the previous three-month period and also 53.5% lower than one year ago. The ONS recorded 13,000 job vacancies in the industry compared to 27,000 for the same period last year. However, vacancies between March and May 2020 were still higher than the lows seen during the worst of the financial crisis. 5. Building merchant Travis Perkins plans to close 165 branches (representing about 8% of its network) and cut around 9% of its workforce. It said the branch closures will be “concentrated in the Merchant businesses, in particular the Travis Perkins General Merchant, focusing on small branches where it is either difficult to implement safe distancing practices, or where marginal profitability will be eroded in a reduced volume environment”. Its update said that trading volumes in May were around 60% of last year while the amount of business it was doing on a weekly basis was around 85-90% of the prior year. It warned that whilst trading volumes had significantly recovered in recent weeks the group does not expect to return to pre-COVID trading conditions and demand for some time. COVID-19: CONSTRUCTION UPDATE 23 rd June 2020 #KeepConstructionThriving ONS UK Construction Output (April 2020 v March 2020) Source: ONS % Change 0 -20 -40 -60 -10 -30 -50 -70 -66.5% Public New Housing Private New Housing Private Industrial Private Commercial Public Housing R&M Private Housing R&M Non-Housing R&M All Work Infrastructure Public Non- Housing -59.2% -20.4% -14.0% -42.5% -39.8% -45.0% -25.5% -40.1% -54.3% Jan-Mar 2007 Vacancies (000’s) Jan-Mar 2011 Jan-Mar 2015 Jan-Mar 2009 Jan-Mar 2013 Jan-Mar 2017 Jan-Mar 2008 Jan-Mar 2012 Jan-Mar 2016 Jan-Mar 2010 Jan-Mar 2014 Jan-Mar 2018 Jan-Mar 2019 Jan-Mar 2020 May-Jul 2007 May-Jul 2011 May-Jul 2015 May-Jul 2009 May-Jul 2013 May-Jul 2017 May-Jul 2008 May-Jul 2012 May-Jul 2016 May-Jul 2010 May-Jul 2014 May-Jul 2018 May-Jul 2019 Sep-Nov 2007 Sep-Nov 2011 Sep-Nov 2015 Sep-Nov 2009 Sep-Nov 2013 Sep-Nov 2017 Sep-Nov 2008 Sep-Nov 2012 Sep-Nov 2016 Sep-Nov 2010 Sep-Nov 2014 Sep-Nov 2018 Sep-Nov 2019 0 5 10 15 20 25 30 35 Vacancies in UK Construction Source: ONS Anticipated Reduction in Workforce between March and September 2020 -16.0% -14.0% -12.0% -10.0% -8.0% -6.0% -4.0% -2.0% 0.0% Specialist Contractors Consultants Home Builders Other -4.0% -4.4% -11.4% -11.4% -12.5% -14.8% -3.0% Contractors Developers Material Suppliers May May May May Jan Jan Jan Jun Jun Jun Feb Feb Feb Jul Jul Jul Mar Mar Mar Apr Apr Apr Aug Aug Aug Sep Sep Sep Oct Oct Oct Nov Nov Nov Dec Dec Dec % 2017 2020 2018 2019 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 UK CPI - % change over 12 months 2. The Bank of England (BoE) has boosted its bond-buying programme by an additional £100bn in a move designed to maintain low government borrowing costs. The BoE’s Monetary Policy Committee voted to extend the quantitative easing programme and keep interest rates at their historic low of 0.1%. The extra monetary stimulus - known as quantitative easing - will raise the size of the BoE’s asset purchase programme to £745bn and will help support the financial markets and underpin the recovery. 3. The UK economy shrank by 20.4% in April, while official jobs data showed the number of workers on UK payrolls fell by more than 600,000 between March and May. However, more recent indicators of economic activity suggest the economy is starting to bounce back. Payments data is consistent with a recovery in consumer spending in May and June, and housing activity has also started to pick up, suggesting that the economic contraction could be less severe than the Bank of England’s expectation that the economy could shrink by 25% in the three months to June 2020.
Transcript of CONSTRUCTION UPDATE · financial year. The updated versions of the full three-year plan and also...
CONSTRUCTION
1. The most recent UK construction output data published by the ONS has revealed a 40% (£5.1bn) drop in the value of ‘All Work’ output in April compared to the previous month. April’s output value was also 44% lower than the same month in 2019. All sectors experienced a substantial month-on-month drop in output but new housing appeared to be the worst affected, falling by more than 60%. The least affected sector was public non-housing (-14%) primarily due to work on hospitals and schools. Infrastructure (-20%) was also less affected as social distancing is easier to maintain on large sites.
COMMODITIES & MATERIALS
1. The International Energy Agency (IEA) has said that drop in oil demand caused by the coronavirus pandemic will endure throughout 2021 and even beyond. In its first forecast for next year, the IEA said demand would rise by 5.7m barrels a day to 97.4m b/d. This is a rebound from the expected 8.1m b/d fall in 2020, set to be the largest drop on record. But it will still put 2021’s total demand 2.4m b/d below 2019. Neil Atkinson, head of oil markets at the IEA said:
“We have to assume that oil demand doesn’t get back to around 100m b/d until some point in 2022.”
2. Builders merchants’ sales fell by 76.3% year-on-year in April according to the Builders Merchant Federation (BMF). Sectors which had the biggest falls were tools - down 90% on the same month last year, kitchens and bathrooms - down 87%, and safety and workwear which was down 60%. However John Newcomb, chief executive of the BMF said that most branches have now been reopened and that and that he expects the “picture to improve as data for the rest of Q2 becomes available.”
3. China has accelerated its dominance in global steel production. In April, whilst the UK produced less than half of 1% of the world’s steel, estimates from the World Steel Association show that China produced 62% - dwarfing every other country combined and significantly above its 54% share one year earlier. While steel mills fell quieter in Europe, the US and India, Chinese producers kept running through its COVID crisis and are producing at an even faster rate than they did last year. As Chinese mills scrambled for supplies to meet domestic demand, the price of iron ore has surged 20% over the past month to above $105 a tonne.
GLOBAL ECONOMY
1. The UK has formally rejected the option to extend its post-Brexit transition beyond the end of this year. The legal deadline to request an extension to the transition period expires at the end of June but Michael Gove, Cabinet Office minister, has now formally confirmed the decision, leaving companies with just six months to prepare for potentially more restrictive trading conditions with the EU. The Government has also confirmed that it has scrapped plans to immediately introduce full import controls on EU goods in the new year.
2. The International Energy Agency (IEA) published its Sustainable Recovery Report last week, presenting world leaders with cost-effective measures that could be implemented from 2021 through to 2023. The $3 trillion green recovery plan sets out three main goals: spurring economic growth, creating jobs and building more resilient and cleaner energy systems. The report offers governments around the world a roadmap to sustainably rebuild their economies in the wake of the pandemic. Fatih Birol, executive director at the IEA, said in the report:
“As they design economic recovery plans, policymakers are having to make enormously consequential decisions in a very short space of time... These decisions will shape economic and energy infrastructure for decades to come and will almost certainly determine whether the world has a chance of meeting its long-term energy and climate goals.”
CONTRACTOR NEWS
1. The results of a Build UK survey conducted at the start of June 2020 to help inform the Construction Leadership Council’s planning for industry recovery have been published. The survey revealed that across the industry, 43% of respondents expect to make some redundancies and that contractors expect to lay off an average of 11.4% of their employees by September 2020.
The survey also found that:
– 60% of respondents are looking to take on fewer apprentices at the next intake
– Across all sectors respondents currently directly employ 89% of their workers, with the remaining 11% being self-employed or agency workers
– On average, 32% of direct employees are currently furloughed across all sectors
– All sectors of the industry have accessed the government’s coronavirus job retention scheme at some point
– There is expected to be a 7.7% reduction in the number of directly employed workers across the industry by September
– Contractors are looking to reduce self-employed and agency workers by 42% by September
2. Severfield, the country’s biggest steelwork contractor, saw a 16% rise in underlying pre-tax profit to £28.6m in the year ending 31st March 2020, putting it ahead of its strategic profit target of £26m. However, Severfield noted that it is beginning to see some schemes being put on hold as spooked clients delay jobs because of the COVID-19 crisis and is taking measures to preserve cash. Chief executive Alan Dunsmore said:
“We are now seeing evidence of investment decisions being delayed in some of our sectors as clients and developers appear to be adopting a more cautious approach until greater market clarity returns. Pricing generally remains competitive.”
3. Wates has reportedly proposed a Nightingale-style plan to build temporary additional classroom space to help children get back to school. Wates’ group strategy director and education lead Steve Beechey said it would use its off-site schools system called ADAPT, which it has used on 50 sites in the past eight years, to help build the extra space schools now need because of ongoing social distancing protocols. He added that if the Department for Education gave the green light in the next few weeks, extra space could be available for the start of the new school year.
4. A spokesman from Laing O’Rourke has confirmed that its projects were on track to return to full productivity by the end of July, enabled by a direct-delivery operating model and modern methods of construction. It was noted that now, more than ever, the sector needs to modernise and improve productivity as the challenges it faces have been laid bare by the current crisis. Separately, Ray O-Rourke said recently said:
“Modern Methods of Construction have been critical to continuing high-quality work with fewer people on site and our sector must now embrace this fully to maximise its contribution to the UK’s economic recovery.”
5. A recent G&T contractor survey found that productivity levels on site in England and Wales are averaging around at 70-90% of pre-COVID levels. Although site-specific, factors that are currently having the most significant impact on productivity include:
– Increased idle time of workforce
– Lack of workspace to social distance
– Ability to get to site
The survey also found that rebalancing labour density on site whilst trying to maintain productivity is proving challenging but that labour levels are inevitably closely correlated with productivity. Several respondents noted that extended hours and shift-splitting are helping to improve productivity on site, as is re-sequencing work so that more is done earlier on in the programme to avoid the typical back-end spike in activity.
UK ECONOMY
1. UK consumer price inflation (CPI) dropped to a four-year low in May (0.5% year-on-year) as falling prices put downwards pressure on inflation following the shutdown of the economy. CPI has dropped from 1.5% in March to the current low and has remained under the Bank of England’s 2% target since last August. Economists expect inflation will fall further in the coming months, with some predicting a near-zero rate as shops continue to cut prices to attract wary customers as the economy reopens.
2. The Scottish Government has announced a ‘return to work’ package that allocates £78m for construction projects such as regeneration and road maintenance. The package, funded by the reallocation of underspends from schemes interrupted by COVID-19, is designed to help stimulate Scotland’s economy following the pandemic. The £78m construction spend includes £40m for regeneration projects and £20m for roads maintenance.
3. The Government has published its 2020 National Infrastructure and Construction Procurement Pipeline listing 340 procurement contracts across 269 government projects that are set to come to market in the next 12 months. Total value of the work is estimated to be between £29bn and £37bn during the 2020-21 financial year. The updated versions of the full three-year plan and also the 30-year National Infrastructure Strategy are still not ready, but the 2020 version has been published to provide the industry with short to medium-term certainty and greater visibility of where infrastructure investment is being made and by whom.
4. Provisional data from the ONS indicates that vacancies in the UK construction sector between March and May 2020 were 54.3% lower than in the previous three-month period and also 53.5% lower than one year ago. The ONS recorded 13,000 job vacancies in the industry compared to 27,000 for the same period last year. However, vacancies between March and May 2020 were still higher than the lows seen during the worst of the financial crisis.
5. Building merchant Travis Perkins plans to close 165 branches (representing about 8% of its network) and cut around 9% of its workforce. It said the branch closures will be “concentrated in the Merchant businesses, in particular the Travis Perkins General Merchant, focusing on small branches where it is either difficult to implement safe distancing practices, or where marginal profitability will be eroded in a reduced volume environment”. Its update said that trading volumes in May were around 60% of last year while the amount of business it was doing on a weekly basis was around 85-90% of the prior year. It warned that whilst trading volumes had significantly recovered in recent weeks the group does not expect to return to pre-COVID trading conditions and demand for some time.
COVID-19:CONSTRUCTION
UPDATE23rd June 2020
#KeepConstructionThriving
ONS UK Construction Output (April 2020 v March 2020)
Source: ONS
% C
hang
e
0
-20
-40
-60
-10
-30
-50
-70
-66.5%
Pub
lic N
ew H
ous
ing
Pri
vate
New
Ho
usin
g
Pri
vate
Ind
ustr
ial
Pri
vate
Co
mm
erci
al
Pub
lic H
ous
ing
R&
M
Pri
vate
Ho
usin
g R
&M
Non
-Hou
sing
R&
M
All
Wor
k
Infr
astr
uctu
re
Pub
lic
Non
- H
ousi
ng
-59.2%
-20.4%
-14.0%
-42.5%-39.8%
-45.0%
-25.5%
-40.1%
-54.3%
Jan-
Mar
200
7
Vaca
ncie
s (0
00’s)
Jan-
Mar
201
1
Jan-
Mar
201
5
Jan-
Mar
200
9
Jan-
Mar
201
3
Jan-
Mar
201
7
Jan-
Mar
200
8
Jan-
Mar
201
2
Jan-
Mar
201
6
Jan-
Mar
201
0
Jan-
Mar
201
4
Jan-
Mar
201
8
Jan-
Mar
201
9
Jan-
Mar
202
0
May
-Jul
200
7
May
-Jul
201
1
May
-Jul
201
5
May
-Jul
200
9
May
-Jul
201
3
May
-Jul
201
7
May
-Jul
200
8
May
-Jul
201
2
May
-Jul
201
6
May
-Jul
201
0
May
-Jul
201
4
May
-Jul
201
8
May
-Jul
201
9
Sep
-Nov
200
7
Sep
-Nov
201
1
Sep
-Nov
201
5
Sep
-Nov
200
9
Sep
-Nov
201
3
Sep
-Nov
201
7
Sep
-Nov
200
8
Sep
-Nov
201
2
Sep
-Nov
201
6
Sep
-Nov
201
0
Sep
-Nov
201
4
Sep
-Nov
201
8
Sep
-Nov
201
9
0
5
10
15
20
25
30
35Vacancies in UK Construction
Source: ONS
Anticipated Reduction in Workforce between March and September 2020
-16.0% -14.0% -12.0% -10.0% -8.0% -6.0% -4.0% -2.0% 0.0%
Specialist Contractors
Consultants
Home Builders
Other-4.0%
-4.4%
-11.4%
-11.4%
-12.5%
-14.8%
-3.0%
Contractors
Developers
Material Suppliers
May
May
May
May Jan
Jan
Jan
Jun
Jun
Jun
Feb
Feb
Feb
Jul
Jul
Jul
Mar
Mar
Mar
Ap
r
Ap
r
Ap
r
Aug
Aug
Aug Sep
Sep
Sep
Oct
Oct
Oct
Nov
Nov
Nov
Dec
Dec
Dec
%
2017 20202018 2019
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
UK CPI - % change over 12 months
2. The Bank of England (BoE) has boosted its bond-buying programme by an additional £100bn in a move designed to maintain low government borrowing costs. The BoE’s Monetary Policy Committee voted to extend the quantitative easing programme and keep interest rates at their historic low of 0.1%. The extra monetary stimulus - known as quantitative easing - will raise the size of the BoE’s asset purchase programme to £745bn and will help support the financial markets and underpin the recovery.
3. The UK economy shrank by 20.4% in April, while official jobs data showed the number of workers on UK payrolls fell by more than 600,000 between March and May. However, more recent indicators of economic activity suggest the economy is starting to bounce back. Payments data is consistent with a recovery in consumer spending in May and June, and housing activity has also started to pick up, suggesting that the economic contraction could be less severe than the Bank of England’s expectation that the economy could shrink by 25% in the three months to June 2020.
