Talking Points:
- UK Construction PMI beats expectations on residential boost
- Inflation rears its head as input costs rise sharply
- Nationwide House Price Index flat on month, annual growth dips
UK construction output rose in October, beating market expectations, on the back of another solid increase in residential demand. New order volumes also picked up, providing a little more cheer to the post-Brexit landscape.
However, while the ongoing ultra-low interest rate environment may have boosted demand, input costs rose at one of their fastest rates in the last five years. The weaker Pound, down around 18% since the Brexit vote, continues to push up import prices, fuelling concerns over higher inflation going forward.
The Markit/CIPS UK construction PMI rose to 52.6 in October from 52.3 in September, beating forecasts of a downtick to 51.8.
Tim Moore, senior economist at IHS Markit said: “The UK construction sector has started the fourth quarter in a positive fashion, with the latest survey data revealing a moderate rebound from the downturn seen during the summer. Construction growth was dependent on a solid recovery in residential work, as civil engineering and commercial building struggled for momentum in October.”
Earlier Wednesday, the latest Nationwide House Price Index showed prices were unchanged month on month in October, breaking a 15-month uptrend. Annual price growth slipped to 4.6% from 5.3%.
It is not just the construction industry worrying about importing inflation. A recent survey by the British Retail Council noted that while the weaker Pound had not lead to higher prices yet, this was certain to change.
"It is inevitable that imported inflation will begin to make its mark and we would expect to start to see this effect coming through in the first quarter of 2017," BRC chief executive Helen Dickinson said.
These releases provided some support for the Pound ahead of a busy Thursday. The closely followed services sector PMI survey will be released ahead of the latest Bank of England policy decision and the publication of the central bank’s Quarterly Inflation Report.
Cable (GBP/USD) pushed marginally higher after the data crossed the wires, aided in part by a slightly weaker US Dollar. Financial markets have been rattled by a narrowing of the polls ahead of next week’s US general election, with uncertainty weighing on risk appetite and punishing the greenback.
