Aurelia Butler

UK construction activity increased at the fastest pace in three months, driven by growth in the commercial sector that offset a sharp fall in housebuilding, according to a closely watched survey published on Tuesday. The S&P Global/Cips construction purchasing managers’ index, which measures monthly changes in total industry activity, rose to 51.6 in May, up from 51.1 in April and above the neutral 50 mark for the fourth successive month.The figure was higher than the 51.1 reading forecast by economists polled by Reuters and the best since February. Martin Beck, chief economic adviser to the EY Item Club, a consultancy, said that alongside a final PMI of 55.2 for the services sector in May, published on Monday, the data meant it was “now looking more possible that gross domestic product will grow in Q2”. He added that the readings also boosted the likelihood of a return to “meaningful [economic] growth in the second half of this year”. The S&P Global/Cips survey said rising demand among corporate clients and contract awards on infrastructure projects underpinned the fastest rise in new construction orders since April 2022. Commercial building was the best-performing category, with a PMI sub-index of 54.2 in May, up from 53.9 in April. Matthew Pointon, senior property economist at the consultancy Capital Economics, said the data suggested “developers think the worst of the capital value falls are now behind us and that demand is recovering”.Civil engineering also gained momentum, with a reading of 53.9, indicating the fastest growth in almost 12 months. However, work on residential building projects fell for the six consecutive month and at the steepest pace since May 2020, as worries about the impact of higher interest rates continued to dampen housing demand. Residential PMI housing’s index of 42.7 was the lowest in 14 years, excluding the height of the pandemic. Tim Moore, economics director at S&P Global Market Intelligence, said the data for May “highlighted a mixed picture across the UK construction sector, as solid growth rates in commercial and civil engineering activity contrasted with a steeper downturn in housebuilding”.The survey also showed a shortening of vendor lead time as supply disruptions eased. This helped alleviate cost pressures across the construction sector, with the overall rate of input price inflation declining to its weakest for almost three years.Economists have warned, however, that the construction sector continues to face challenges from high borrowing costs and rising living costs. Markets expect the Bank of England’s Monetary Policy Committee to lift interest rates further when it next meets on June 22 — a move that Beck said would “weigh on residential and commercial activity”. More

LONDON (Reuters) – The Bank of England is trying to curb an inflation rate that is running higher in Britain than in the United States and the euro zone, without pushing the economy into a recession after having already increased borrowing costs 12 times since late 2021.The BoE is expected to raise rates again, to 4.75% from 4.5%, on June 22 after inflation slowed by less than it hoped in April. Investors see a roughly 60% chance that Bank Rate will climb to 5.5% later this year.Nonetheless, two of the Monetary Policy Committee’s nine members say the delayed impact on the economy of the BoE’s rate hikes to date mean there is no need to tighten policy any further. Below is a summary of the factors the BoE is weighing up as it approaches its next meeting.INFLATION British consumer price inflation (CPI) fell to 8.7% in annual terms in April, down from 10.1% in March but higher than the BoE’s forecast of 8.4%. It was the joint highest among Group of Seven advanced economies alongside Italy’s. More worrying for the BoE, two measures of underlying price growth – core inflation, which excludes energy, food and tobacco prices, and price increases in the services sector – both hit their highest rates since 1992. However, analysts polled by Reuters last month forecast that headline CPI will slow to 3.7% in the fourth quarter of this year and to just above the BoE’s target of 2% in a year’s time as last year’s surge in energy prices drops out of the figures. The analysts mostly expected Bank Rate to peak at 5.0%.INFLATION EXPECTATIONSThe BoE takes comfort from signs that inflation expectations are falling after rising in recent months.Public expectations for inflation over five to 10 years – which are watched closely by the central bank – eased in May to their lowest in nearly two years at 3.5%, according to a survey by U.S. bank Citi and polling firm YouGov.Companies surveyed by the BoE in May intended to raise prices by 5.1% over the coming year, down from 5.9% in April’s survey, the lowest since Russia’s invasion of Ukraine.WAGE SETTLEMENTSThe same BoE survey showed businesses planned to raise wages by 5.2% over the coming year, down from expectations of 5.4% in April and the lowest since July 2022. But data from human resources firm XpertHR showed pay settlements by employers held at 6% in the three months to April, matching recent record increases. INFLATION HEAT IN THE LABOUR MARKETThe BoE is worried about long-term inflation heat from the labour market where a shortage of workers, caused by a rise in the number of long-term sick after the COVID-19 pandemic, has been compounded by new Brexit rules on European Union workers. There have been some signs of an easing of that pressure recently. More people sought to get back into work in the first three months of the year, pushing down Britain’s inactivity rate and easing the need for employers to raise pay to attract workers. THE RATE HIKES ALREADY IN THE PIPELINEThe BoE knows much of the impact of its 12 rate hikes to date has yet to be felt because most mortgages in Britain are fixed-rate deals which protect home-owners from swings in borrowing costs but will come up for renewal at higher rates.The BoE said in May that 1.3 million fixed-rate mortgages were due to mature by the end of 2023 with more up for renewal in 2024 and beyond, meaning much of the hit to household budgets has yet to be felt. RECESSION RISK REMAINSBritain’s economy has so far defied recession forecasts made only a few months ago, but it remains fragile and the recent jump in expectations of higher borrowing costs may yet tip it into a contraction this year. British gross domestic product has recovered from the COVID pandemic more slowly than all the other G7 economies bar Germany, according to data for the first three months of 2023. (Graphics by Kripa Jayaram, Vineet Sachdev and Vincent Flasseur; Editing by Catherine Evans) More

WASHINGTON (Reuters) – Neither President Joe Biden’s Democrats nor Republicans in Congress emerged as a clear winner in the battle to raise the $31.4 trillion debt ceiling, according to a new Reuters/Ipsos poll.The survey, conducted after Congress passed a bipartisan deal to raise the borrowing limit, found that 50% of Americans thought neither party emerged as a winner, while another 20% said both sides won.Another 20% said they thought Democrats emerged with the better side of the deal, while 11% said Republicans had done better, according to the four-day poll which concluded on Monday.The poll found self-identified Democrats were more likely to be satisfied with the outcome. Some 80% of Democrats liked how President Joe Biden handled their side’s end of the talks, while just 13% took a dim view of Biden’s performance.By contrast, only 44% of Republicans approved of how their party’s top congressional official, U.S. House Speaker Kevin McCarthy, drove the bargain for Republicans. Forty-two percent disapproved.McCarthy’s poor marks reflect the deep divisions within his party. Hard-line Republicans who sought deeper government spending cuts in the talks have warned that McCarthy’s job could be in danger. Biden and McCarthy reached a deal last week to suspend the debt ceiling weeks of negotiations between Biden’s White House and Republicans who control the House of Representatives. Biden signed the deal into law on Saturday, averting the financial disaster that would have unfolded if Washington were forced to stop paying all its bills.Politicians on both sides have presented the deal as a victory, with Republicans touting a reduction in non-military spending. Biden said the compromises in the deal were a sign the polarized nation could bridge its political divides. Critics of the deal on the right said the cuts did not go far enough, while progressives criticized increased work requirements for struggling Americans receiving food or monetary assistance and provisions streamlining approvals for fossil fuel projects amid a climate change crisis.The deal would cut spending by $1.3 trillion, less than the $4.8 trillion Republicans had sought. It does little to slow growth in federal debt that is on pace to exceed $50 trillion in a decade.The Reuters/Ipsos poll surveyed 1,004 U.S. adults nationwide and had a credibility interval, a measure of precision, of about 4% in either direction. More