UK construction growth beats forecasts

Bloomberg

The UK construction industry fared far better than previously thought during a snow-blighted first quarter, giving an unexpected boost to the economy.
Building output fell 0.8 percent from the fourth quarter instead of the 2.7 percent drop estimated last month, the Office for National Statistics said. Overall economic growth was revised to 0.2 percent from 0.1 percent. Separate figures showed the current-account deficit narrowing.
The GDP revision may fuel expectations that the Bank of England will raise its benchmark interest rate this year, with anecdotal evidence suggesting activity rebounded this quarter.
Speculation intensified this month after BOE Chief Economist Andy Haldane joined a minority of policy makers pushing for an immediate rate increase. In a speech, Haldane cited cost pressures building in the labor market and an underlying picture of “gently rising household spending.’’
“As things stand, we don’t expect the MPC will have to deal with disappointment between now and its next meeting. We forecast a solid showing for GDP in May when the ONS will release its first monthly GDP series along with signs that the labor market remains tight. Pay growth is also continuing to bubble while inflation remains above target — all the MPC needs to lift rates in August,” said Dan Hanson, Bloomberg Economics.
The latest GDP data incorporates annual Blue Book revisions. The upward revision to construction was partly offset by downward revisions to manufacturing and industrial production.
The BOE expects growth to be eventually revised up to 0.3 percent and sees GDP expanding 0.4 percent in the current quarter, above the economy’s so-called speed limit.
Services, the largest part of the economy, made a promising start to the second quarter, growing 0.3 percent in April.
But consumers remained under pressure in the first quarter, helping to explain the plight of retailers including high street bellwether John Lewis that already struggling against online rivals.
Real disposable incomes per head rose just 0.2 percent and households saved 4.1 percent of their incomes, the least for a year. Households have been borrowers for six consecutive quarters, the longest streak on record, as rising prices squeeze domestic budgets.
Overall consumer spending rose 0.2 percent, the weakest since the end of 2016. Business investment fell 0.4 percent, more than previously estimated, suggesting Brexit uncertainty is prompting firms to delay spending decisions. Net trade made a modest 0.1 percentage point contribution to growth.