Macro to micro: How will volatile global markets affect UK construction?
With Chinese investors treating their stock market like a weekend at the Venetian in Macau, it came as no surprise to see the country’s regulators step in this week to hand a three-month ban to their three biggest brokers on opening new margin accounts, which allow investors to bet big with borrowed money.
21st January 2015 | Chris Evans: Deputy Managing Director, Rolton Group
The clamp-down is hoped to bring about more measured long term growth, but in the immediate it caused the stock market to plummet by 8 percent in a single day, the biggest drop seen in China since the height of the financial crisis.
This wasn’t to be the week’s only shocking financial news; last Thursday the Swiss Central Bank took the surprise decision to stop keeping the Swiss Franc artificially cheap against the Euro, a move that has already forced one foreign exchange broker, Alpari UK, into administration (at least I don’t support West Ham, who are heading for a lean time of it after this!) and has sent Switzerland’s stock market into swings of both wins and losses. The instant effect of this will be a price hike on all exports from the country, sending a ripple of longer term uncertainty to its global trading partners.
In Europe the mood has been somewhat different, with European stocks reaching highs not seen since 2007 in anticipation of tomorrow’s announcement by Mario Draghi, President of the European Central Bank. Industry insiders are hinting that he will introduce quantitative easing to the tune of $600bn in order to stimulate the continent’s economies and head off concerns surrounding prolonged deflation, and the markets are responding by climbing to record levels even before the deal is confirmed.
So what does this mean for the UK and for our construction industry in particular? With quantitative easing winding down in Britain and the USA, we have seen a reduction in price of copper and other mined commodities, which will no doubt lead to reducing the inflationary costs that are generally being seen in UK construction projects. Of course, any industry heavily reliant on exports should be wary of the volatility that is so prevalent elsewhere in Europe, and prior to Mr Draghi’s decision tomorrow things could still change.
In the UK we have seen material costs rise by 1 percent in the year to September, but these could become less inflationary due to commodity costs coming down which are being overshadowed by earning increases of 2.4 percent. One of the underlying issues that companies will face in the foreseeable future will be to maintain good staff levels and improve on recruitment whilst maintaining quality. Wider EU uncertainty could help with the sourcing of staff, but the trick will be to get the right ones as and when they become available. At Rolton Group we are proud that our staff retention rate sits at 91 percent per annum, thanks in no small part to our continued emphasis on training and personal development.