UK Construction picks up in May

Markets appear relieved that the Italian political situation has stabilised (at least for now), and do not seem overly concerned with escalating trade disputes. Italy’s new government will face a confidence vote in the two Houses today, which is expected to be an easy win.

Following Friday’s stronger-than-expected manufacturing PMI, further insight into domestic activity trends came from the construction PMI for May. In April, the headline measure rose strongly, rebounding from March’s weather- impacted dip into negative territory (below 50) to reach a five-month high of 52.5. The improvement continued into May and we see a figure of 52.5 again better than the expected 52. Construction sector accounts for only around 6% of UK economic activity, the growth outlook will be primarily driven by the dominant services sector. Tomorrow’s service PMI will hence be much more revealing for the outlook.

Assuming that the UK economy recovers in Q2, the likelihood of a Bank of England rate increase should also rise. In that context, comments from BoE rate-setter, Silvana Tenreyro, will be closely watched. Since joining the MPC last July, comments from Ms. Tenreyro have been few and far between. However, she has broadly supported the notion that UK Bank Rate will have to rise a couple of times over the next few years.

Elsewhere, it is a relatively quiet day with no major data or speeches.

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