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Home > News > Construction Breakfast – February 2017

Construction Breakfast – February 2017

14 February 2017 |

Bank of England and an outlook of the UK economy

Today saw another successful breakfast with over 60 construction and property professionals meeting at Bordeaux Quay in Bristol to feast on breakfast delights and industry insights.

The monthly date had its largest turnout yet, with nearly every available seat taken! We were delighted to welcome Donna Kehoe, Bank of England Agent for the South West of England, who addressed our keen audience with an outlook of the UK economy, in terms of financial stability and security as well as interest rates. Donna approached the subject of the EU referendum with confidence, stating that the forecast from the Bank and economists alike predicted a negative effect on consumer/business demand at the time.  However, she readily admitted those predictions were so far incorrect.

The Bank of England made two announcements in August 2016 of new schemes in the MPC policy decision – Corporate Bond Scheme and Term Funding Scheme. Those decisions have been maintained throughout the referendum, showing the Bank of England plan to place £10bn into CBS and £435bn into TFS at a 0.25% rate.

Donna continued to explain that GDP is more positive than they thought it would be after the vote. As the economy has adjusted to the new world, the Bank has been proved wrong although they still expect the GDP to take a small dip and then restore itself once more. This is all down to significant levels of fiscal activity going on from the Autumn Statement, election of Trump and consumers so far not reacting to Brexit.

The global market place is looking better and will unlikely be hit too badly, though Donna went on to express concerns surrounding activity from China. China’s total capital outflows have increased, showing more investment into the UK, but the Chinese authorities typically react when much money leaves China. This may lead to restrictions being put in place, thus effecting investment into the UK.

The Bank of England have noticed that the sterling has been volatile, with a steep 18% drop down on last year. This is great news for exporters but bad news for importers as they’ll see a hike in prices for the drop in sterling, continuing for some time until we’re in a more stable world.

After the referendum, the investment intentions softened meaning a slight contraction. Many businesses put things on hold to see what would happen next, but the investment intention has already gone back to where they were before the referendum. This mostly seems down to the very long timeframes for Brexit, 2 years plus (with some predicting as many as 10 years) enabling their projects to be fully complete by then. As everything seems so uncertain, businesses tend to be carrying on as usual.

The construction sector was negative about investment when looked at individually. The UK commercial property market has been slowing for a while, so the impact is not from the referendum. In fact, the industry has seen small increases recently with credit and liquidity disappearing around the financial crisis but now remaining strong.

Other highlighted issues included the problem of wage growth, which has failed to pick up in line with past projections, suggesting there is slack in the labour market, thus dragging down the wage growth. Recruitment difficulties seem to be easing as there are people to take up the jobs. Fuel has begun to push up inflation whilst the drag from food has faded. Inflation is now at 2%, an increase from a year ago when it was 0%. Bucking the trend since the referendum is consumer confidence; this has stayed fairly robust with more loans, credit cards and car finance being taken out.

Donna was a gracious presenter and engaged with the audience through a Q&A following her talk. She was able to give insightful knowledge on the UK economic movements as well as being very truthful about many of the Bank of England’s predictions not taking place. Just goes to show how uncertain the new landscape is, what happens next is anyone’s guess…

Our next construction breakfast will take place on Tuesday 7 March, with Duncan Guthrie, Contracting Manager, TP Regeneration. Click here to book your place!

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The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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