(Bloomberg) -- The U.K. construction industry fared far better than previously thought during a snow-blighted first quarter and services gained momentum in April, spurring expectations the Bank of England will raise interest rates this year.
Revisions announced by the statistics office Friday fueled bets on a policy tightening as soon as August, with more recent evidence pointing to a rebound in activity this quarter. The services sector, the largest part of the economy, grew 0.3 percent in April, the fastest pace since November last year.
Speculation about BOE action intensified this month after Chief Economist Andy Haldane joined a minority of policy makers pushing for an immediate rate increase. In a speech on Thursday, Haldane cited cost pressures building in the labor market and an underlying picture of “gently rising household spending.’’
Building output fell 0.8 percent from the fourth quarter instead of the 2.7 percent estimated last month, the Office for National Statistics said. Overall economic growth was revised to 0.2 percent from 0.1 percent. Separate figures showed the current-account deficit narrowing.
The pound rose following the reports and was at $1.3148 as of 10.57 a.m. London time, up 0.5 percent on the day. Traders now put the probability of an August rate hike at about two thirds, up from a third at the end of May.
The latest GDP data incorporate annual Blue Book revisions. The upward revision to construction was partly offset by downward revisions to manufacturing and industrial production.
The BOE expects growth to be eventually revised up to 0.3 percent and sees the economy expanding 0.4 percent in the current quarter, above its speed limit.
Consumers remained under pressure in the first quarter, helping to explain the plight of retailers including high street bellwether John Lewis that are already struggling against online rivals.
Real disposable income per head rose just 0.2 percent and households saved only 4.1 percent of the money they brought in, the least for a year. Households have been borrowers for six consecutive quarters, the longest streak on record, as rising prices squeeze domestic budgets.
Overall consumer spending rose 0.2 percent, the weakest since the end of 2016. Business investment fell 0.4 percent, more than previously estimated, suggesting Brexit uncertainty is prompting firms to delay spending decisions. Net trade made a modest 0.1 percentage point contribution to growth.
Data from the BOE, also published Friday, showed consumer borrowing growth slowed in May to an annual rate of 8.5 percent, the weakest pace since November 2015. Lenders signed off on more mortgages than economists expected, though approvals are down on year-earlier levels, reflecting a subdued housing market.
In a separate report, the ONS said the current-account deficit, the gap between money leaving the U.K. and money coming in, narrowed to 17.7 billion pounds ($23 billion) between January and March. That left the shortfall at 3.4 percent of GDP, the lowest for a year.
The figures may help allay concerns about the willingness of foreign investors to fund the deficit by buying British assets as the U.K. prepares to leave the European Union.
The improvement came as the trade deficit narrowed and British investors did better on their overseas investments than foreign investors did on their U.K. holdings.
The BOE said non-resident investors bought 5.27 billion pounds of U.K. government bonds in May, following sales of 2.44 billion pounds in April.
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