Construction output slumps to nine-month low

Holger Zschaepitz 
Bond rout eases a bit. German 10y yields rise 1bp to 0.57

Economists had forecast a 0.2% increase for May. In March, Prime Minister Theresa May triggered the two-year Brexit process but discussions only began in June after a general election in which her Conservative Party lost its majority in parliament.

The latest data from the Office for National Statistics recorded output of £11.43bn in May, down from £11.56bn in April and marking the lowest volume since August 2016.

"With these outturns coming on the back of several months of soft data, it is now virtually certain that both [the industrial and construction] sectors will drag on GDP growth in the second quarter", said Howard Archer, chief economic adviser to the EY Item Club.

Peter Dixon, an economist at Commerzbank, was quoted by the BBC as saying: "It's all building up a pattern here that says the economy is clearly losing momentum".

FXTM research analyst Lukman Otunuga said: "With the string of economic data from the United Kingdom this week proving nothing to celebrate about, investors may be forced to re-evaluate the possibility of a United Kingdom rate hike this year. Under those circumstances, the timing of the hawks on the Monetary Policy Committee pushing for a rate hike doesn't look great".

Construction figures were also worse than expected, declining by 1.2 per cent month-on-month and over a three-month period from the previous quarter.

The strength of next Wednesday's official data on wages is now likely to be critical for BoE policymakers as they mull whether to raise interest rates from their record low 0.25 percent. Industry figures have shown a fall in new vehicle sales. In April, output dropped 0.8 per cent. It's also said it doesn't want to remain a member of the customs union as that would limit its ability to strike trade deals beyond the EU.

Other gloomy news from today come from trade data, as the UK's deficit in goods and services - the gap between exports and imports - widened by £1billion to £3.1billion between April and May, with economists' expecting a figure for £2.5billion.

Within the overall figure, manufacturing output rose 2% on the month. However, business surveys have cast doubt about whether an improvement will be seen in the months ahead.

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