Rate increase talk’s building
THE pound strengthened yesterday and an interest rate rise loomed larger after the economy grew faster than expected in the first three months of the year.
Output across the construction sector, which represents 6 per cent of GDP, was revised up in the latest Office for National Statistics data, helping the economy expand by 0.2 per cent compared with a previous estimate of 0.1 per cent.
Official figures also showed the powerhouse services sector gathered momentum in April, growing 0.3 per cent from the previous month which is the quickest pace since last November.
An earlier estimate had construction shrinking by 2.7 per cent in the first quarter as freezing temperatures brought work to a halt. The new data shows it was down 0.8 per cent.
The ONS said: “There have been some notable upward revisions to construction output in recent quarters.
“Today’s new construction estimates show a much stronger growth profile throughout 2017. Output is now estimated to have increased by 7.1 per cent in 2017, up from 5.7 per cent.”
An upturn in legal work in April boosted the services sector, which accounts for about 80 per cent of overall output, offsetting weaker performances in food and drink and motor trade.
Last month the Bank of England held interest rates at 0.5 per cent, but three of the Monetary Policy Committee voted for an increase, while six voted for no change. The previous split was 7:2.
Some economists now believe an August rate hike is likely. Sterling gained about 0.9 per cent against the US dollar to nearly $1.32.
EY ITEM Club’s Howard Archer said: “The modest upward revision to GDP growth in the first quarter and healthy services output growth in April – along with recent evidence of a marked pickup in retail sales in the second quarter – fuels our belief that the MPC is more likely than not to hike interest rates from 0.50 per cent to 0.75 per cent at their August meeting.”