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Donna Kehoe Reveals Her 2018 Insights at Gregg Latchams’ Construction Breakfast

Business planning requires us to look forward and attempt to predict the future. The Bank of England publishes its forecast on the UK economy each quarter, and we were fortunate enough to welcome Donna Kehoe, South West Agent for the Bank of England, to our Construction Breakfast in January to explore the data and decisions that the Bank has been making over the last few months.

Donna explained why inflation has risen above the Bank of England’s target of 2% to 3.1% and the effects of the drop sterling after the EU Referendum. The Construction industry  can depend heavily on stable import and export prices, so it was reassuring for many in the room to hear the Bank of England’s forecast that inflation might be near its peak.

During the session, we heard that increased consumer prices have not been matched by wage growth and there has been a drop in consumer spending.  But, of course, the weaker pound makes the UK more attractive for exporting and net trade has increased.  This has been helped by strong economies overseas – for instance, in the US and Europe where confidence has been growing.  As UK prices are more competitive after the sterling drop, international companies have more incentive to spend more in the UK.

But Donna explained that UK investment intentions are still below where they were before the referendum – in spite of low borrowing costs, competitive pricing and a healthier global economy.  Many businesses still feel uncertainty about the economy as we head toward Brexit. 

Unemployment in the UK is at the lowest level for more than 40 years and recruiting the right people and skills continues to get harder for many employers.  For some skills and sectors this is a particular problem, and something that will be familiar to the construction industry. Some businesses are investing in automation, AI or robotics – in some cases to help with recruitment difficulties or to manage increasing labour costs.  With employment so high, Donna explained that in order to obtain further GDP growth we would have to improve productivity as a nation and achieve healthy GDP growth, since the supply of labour is tight.

Overall, the forecast for GDP growth for the UK economy is 1.5% and the Bank of England has said that this is the speed limit at which the UK economy can grow before we get higher inflation.  That’s because, with so few people out of work, the main thing that drives how quickly our economy can grow is productivity: our ability to produce more with what we have.  But productivity growth in the UK has been low for the last few years.

Our Construction Breakfast regulars will know that in the construction industry, it is a mixed story. Some say that housebuilding is slowing down, others argue that space in cities is at a premium and so inventive construction is reclaiming brown sites into office spaces.  But as businesses are less indebted than they were pre-crisis, there are surely opportunities to invest and expand to drive that productivity and futureproof their businesses ahead of their competitors.

Donna certainly provided a clear and comprehensive view into the world of the Bank of England – and explained why interest rates were increased in November to 0.5% to slow down inflation.

The floor was then opened for questions, and Donna fielded a number of questions about the economy and the Bank of England’s decision, and reminded attendees that the Bank of England website contains the latest inflation report, where all the charts and graphs in her presentation could be viewed at leisure.  Donna reminded us that the next Inflation Report will be published on 8th February.

This was the first Construction Breakfast to be hosted by the Watershed, and it was fantastic to welcome over fifty people to enjoy delicious food, excellent networking, and the wonderful Donna Kehoe’s insight. Our next Construction Breakfast is on February 8th as we welcome the Minister for Homes and Communities, Paul Smith. Make sure that you register for your free space now.

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.

Categories: Construction & Engineering | Real Estate & Development

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