Interest rate cut hopes boost UK builders’ optimism
Optimism in the UK construction sector has hit a two-year high, despite subdued order books and another fall in housebuilding.
The latest poll of purchasing managers at building firms has found a sharp upturn in business activity expectations, due to hopes of interest rate cuts.
Just over half of those surveyed forecast a rise in business activity during the year ahead, while only 12% predict a decline – the highest level of business optimism since January 2022.
Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey said:
“UK construction companies seem increasingly optimistic that the worst could be behind them soon as recession risks fade and interest rate cuts appear close on the horizon. The prospect of looser financial conditions and an improving economic backdrop meant that business activity expectations strengthened to the highest for two years in January.
Moreover, there were again signs that customer demand is close to turning a corner as total new orders fell to the smallest extent for six months.
However, the survey also showed that construction activity fell in January, for the 5th month in a row.
The increase in business confidence lifted the UK construction PMI up to 48.8 in January, from 46.8 in December, but still below the 50-point mark separating expansion from contraction.
House-building remained by far the weakest-performing category, while civil engineering and commercial construction work also fell.
UK construction activity fell in all 3 sectors that the PMI cover (housing, civil engineering & commercial) although the falls in civil engineering & commercial were marginal whilst there was another sharp decline in housing, unsurprisingly. (3/n)#ukconstruction #ukhousing pic.twitter.com/EdcM7rGqMS
— Noble Francis (@NobleFrancis) February 6, 2024
Last week, the Bank of England pushed back against pressure to cut interest rates soon, saying it wants to see more evidence that inflation is falling sustainably to its 2% target.
The money markets predict interest rates will have fallen below 4.5% by the end of this year, down from 5.25% at present, with the first cut priced in by June.
Key events
NatWest is currently being run by Paul Thwaite, who was appointed as interim CEO after the resignation of Alison Rose last summer in the Nigel Farage debanking row.
Charles Donald, chief executive of UK Government Investments, was asked by the Treasury Committee this morning if it would be “very difficult” to sell the public shares in a bank that didn’t have a chief executive.
Donald replied that NatWest should provide ‘clarity’ about its leadership plans before the retail sale offering is launched.
Donald explained:
I think they need to provide clarity to the market on their proposals around either confirming the interim chief executive, or a process around appointing a permanent chief executive, for the market to be comfortable, yes.
Advertising agency M&C Saatchi is to orchestrate efforts to persuade millions of Britons to buy shares in NatWest Group, Sky News reported last night.
M&C Saatchi, whose founders in 1995 included Lord Maurice Saatchi and his brother Charles, has been appointed by the Treasury to devise a campaign promoting a retail offer of NatWest shares later this year, Sky say.
Exclusive: M&C Saatchi, the ad agency whose founders helped propel Margaret Thatcher to power, has been hired by the Treasury to evoke the ‘Tell Sid’ privatisation campaigns of the 1980s and encourage millions of Brits to buy shares in NatWest Group. https://t.co/zaL1KqhevE
— Mark Kleinman (@MarkKleinmanSky) February 5, 2024
NatWest share sale could be this summer
The sale of shares in NatWest to the general public could happen as soon as June this year, UK Government Investments has confirmed.
Holger Vieten, who is leading the sale for the Treasury-owned company, told a group of MPs that there are some potential windows in which the share offering could take place.
“The very earliest could be around summertime, but we don’t have a exact date”, Vieten indicated. “Potentially it could happen in June”.
The retail offer which was announced by Chancellor Jeremy Hunt during his autumn statement last year, when he told MPs that the retail sale would take place within 12 months, “subject to market conditions and achieving value for money.”
Vieten also told MPs that UK Government Investments has engaged several advisors to help with its work, including legal firm Freshfields. Barclays has been hired as “retail coordinator” for the float, while Goldman Sachs is its overall privatisation strategy advisor.
The government currently owns 35% of NatWest, dating back to the rescue takeover of Royal Bank of Scotland after the 2008 financial crisis.
UK building companies remained cautious about staff hiring in January, today’s UK construction PMI report shows.
Total employment numbers fell fractionally, while sub-contractor usage was broadly unchanged since the previous month.
Brian Smith, head of cost management and commercial at global infrastructure consultancy AECOM, says shrinking workforces will hit future output:
“Construction output has continued to struggle throughout the winter, with five months of contraction. Wet weather can be partially attributed to some of the recent fall in activity, but the greater concern is the high inflation and tight credit conditions that continue to hamper housebuilding and are beginning to be felt in commercial development.
“These latest figures will hopefully provide greater ambition when it comes to the sector’s long-term approach to resourcing, which represents a growing risk.
Reducing workforce capacity in response to broader economic headwinds will ultimately impact future planning and projects at a time when competition for contracts is increasing.”
Interest rate cut hopes boost UK builders’ optimism
Optimism in the UK construction sector has hit a two-year high, despite subdued order books and another fall in housebuilding.
The latest poll of purchasing managers at building firms has found a sharp upturn in business activity expectations, due to hopes of interest rate cuts.
Just over half of those surveyed forecast a rise in business activity during the year ahead, while only 12% predict a decline – the highest level of business optimism since January 2022.
Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey said:
“UK construction companies seem increasingly optimistic that the worst could be behind them soon as recession risks fade and interest rate cuts appear close on the horizon. The prospect of looser financial conditions and an improving economic backdrop meant that business activity expectations strengthened to the highest for two years in January.
Moreover, there were again signs that customer demand is close to turning a corner as total new orders fell to the smallest extent for six months.
However, the survey also showed that construction activity fell in January, for the 5th month in a row.
The increase in business confidence lifted the UK construction PMI up to 48.8 in January, from 46.8 in December, but still below the 50-point mark separating expansion from contraction.
House-building remained by far the weakest-performing category, while civil engineering and commercial construction work also fell.
UK construction activity fell in all 3 sectors that the PMI cover (housing, civil engineering & commercial) although the falls in civil engineering & commercial were marginal whilst there was another sharp decline in housing, unsurprisingly. (3/n)#ukconstruction #ukhousing pic.twitter.com/EdcM7rGqMS
— Noble Francis (@NobleFrancis) February 6, 2024
Last week, the Bank of England pushed back against pressure to cut interest rates soon, saying it wants to see more evidence that inflation is falling sustainably to its 2% target.
The money markets predict interest rates will have fallen below 4.5% by the end of this year, down from 5.25% at present, with the first cut priced in by June.
Construction activity in Europe’s two largest economies was weak at the start of this year, new data shows.
Data firm S&P Global reports that French construction activity declined at the sharpest rate for three years in January.
S&P Global says:
France’s construction sector remained mired in a deep downturn at the start of 2024, with the contraction in total activity worsening further to its sharpest for three years.
Work carried out on all types of building projects fell in January, with housing and commercial construction activity exhibiting especially-notable slumps. The outlook was gloomy, with business confidence staying subdued amid a further rapid reduction in new orders.
Le PMI construction UE ne touche toujours pas le fond. France et Allemagne en contraction sévère (<50 et en baisse), Italie en forte décélération. pic.twitter.com/lhFlJQekVL
— Ze François Gerber 🇨🇭🇮🇩 (@librefrancois) February 6, 2024
While in Germany, the construction sector remained stuck in a slump at start of 2024, with a sustained sharp downturn in building activity in January.
S&P Global says:
Weakness remained centred on the [German] housing sector, while civil engineering showed greater resilience. With new orders continuing to fall sharply and firms maintaining a negative outlook for future activity, there were further job losses across the sector in January.
Germany Jan. HCOB Construction PMI 36.3 vs 37 in Dec.
..and everyone watching the Chinese real estate market pic.twitter.com/QjmOt6s3DU— ©️redit From Ⓜ️acro to Ⓜ️icro 🇺🇦 (@Credit_Junk) February 6, 2024
Although BP’s profits halved last year, it still made its second-highest earnings in the last decade.
BP’s $13.8bn profits in 2023 reported this morning are dwarfed by the whopping $27.7bn it made in 2022, thanks to soaring oil and gas prices. But they’re above the $12.8bn made in 2021.
In 2020 BP made a loss of $5.7bn, when the Covid-19 pandemic hit energy demand, and you have to go back to 2012, when BP’s annual profits were $17.1bn, for a higher number than last year (excluding 2022).
Chinese stocks surge on hopes of action by Beijing
In the financial markets, shares in China have jumped as hopes build that Beijing will take more forceful action to stem the recent stock rout.
The CSI 300 index of leading Chinese stocks has jumped by 3.5%, while Hong Kong’s Hang Seng is up 4%.
The rally came after Bloomberg reported that regulators plan to brief President Xi Jinping on market conditions and the latest policy initiatives as soon as today.
Kathleen Brooks, research director at XTB, says:
There has been a boost to market sentiment on Tuesday after a strong bounce back for Chinese shares. The Shenzhen Index rose by more than 6% on Tuesday and the Hang Seng was higher by 4% after the Chinese government put more pressure on institutions to actively buy Chinese stocks.
How long this will last, we shall have to see, as it may not be a long-term solution to China’s share price decline, but for now this is helping to boost market sentiment and US futures are also pointing to a higher open in the US later today.
Stocks in Europe are also higher, with the FTSE 100 index up 55 points or 0.75% at 7,668 points.
German factory orders lifted by aeroplane demand
German industrial orders have unexpectedly jumped, bringing some relief to Europe’s largest economy.
Factory orders jumped by 8.9% in December, Germany’s federal statistics office reports, beating expectations that orders would remain flat.
There were a very high volume of large-scale orders in a range of branches, including an “exceptionally large number of aircraft” being ordered.
There were also more large-scale orders for fabricated metal products and electrical equipment, which made up for a drop in orders for new cars, machinery and equipment, and chemicals.
