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UK Construction unexpectedly up – No effect on the rates!

• Posted by Shyam Gokani in Bank of England, Brexit, Currency, David Cameron, Dollar, Economy, EUR, GBP, Mark Carney, Referendum, Sterling, UK
• June 10, 2016
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Britain’s construction output bounced back more than expected in April following surprisingly upbeat industrial data earlier this week, suggesting the economy might have started the second quarter on a firmer footing.

The Office for National Statistics said construction output, which makes up 6 percent of the economy, rose 2.5 percent in April after a 3.6 percent dip in March. This was the biggest monthly increase since January 2014 and surpassed economists’ expectations for a 1.7 percent increase.

Private sector surveys had shown that Britain’s economy has been slowing ahead of the June 23 referendum on European Union membership, but recent official data suggest the outlook may be brightening slightly.

Trader expectations for price swings in the pound climbed for a sixth week to a fresh seven-year high as anxiety about a potential British exit from the European Union gripped investors.

The gauge of one-month volatility goes beyond the June 23 referendum to encompass the aftermath of the vote. Sterling headed for its second weekly decline versus the dollar with less than two weeks before the U.K. decides on whether to remain in the world’s biggest single market.

The day of the vote and results is not likely to be the end of the volatility. Regardless of outcome, there will likely be a sharp move in rates followed by a period where markets are finding their new normal.

The risk of a so-called Brexit is prompting speculation that major central banks are delaying policy changes until after the June 23 vote — either to avoid tightening prematurely, in the case of the Federal Reserve, or to keep stimulus available should it be needed later, as with the European Central Bank. Fed Chair Janet Yellen warned this week a Brexit would have “significant economic repercussions.”

The pound has been a gauge of sentiment throughout the referendum debate. It slid to a seven-year low of $1.3836 in February, and remains the worst-performing Group-of-10 currency this year.

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