U.K. Builders Weather Brexit Vote and Exports to EU Surge
(Bloomberg) -- The U.K. building industry fared better than expected in the wake of the Brexit vote and exports jumped.
Construction output was unchanged in July, the Office for National Statistics said Friday. A decline of 0.5 percent had been predicted in a Bloomberg survey. Separate figures showed the trade deficit narrowing as exports to the European Union surged the most in almost six years.
“While it is still early days, the latest figures give us little reason to alter our view that the immediate impact of the vote to leave the EU will be less severe than many had anticipated,” said Paul Hollingsworth, an economist at Capital Economics. Nevertheless, “we would caution against reading too much into any one month’s figures.”
The figures are at odds with survey evidence pointing to a construction industry in shock following the decision to leave the European Union.
Infrastructure work jumped almost 4 percent, offsetting falls in housing, repairs and commercial buildings. Demand was strong even before the June referendum, with new orders rising 8.6 percent in the second quarter -- the most in three years -- thanks largely to housing.
Construction output in the second quarter fell 0.1 percent instead of the 0.7 percent previously estimated, a revision that will have no real impact on GDP as construction accounts for less than 6 percent of the economy.
Still, economists warned that construction statistics are volatile and the building industry may ultimately be hit hard by Brexit as investment projects are put on hold. Output fell 1.2 percent in the latest three months, maintaining pressure on Chancellor of the Exchequer Philip Hammond to increase infrastructure spending and commit to new building projects in his Nov. 23 Autumn Statement.
Trade figures suggest exporters may be starting to feel the benefits of the sharp fall in the pound. The deficit narrowed to 11.8 billion pounds ($15.7 billion) as exports rose 3.4 percent and imports fell 0.9 percent. Taken together, the figures will boost hopes for growth in the third quarter.
The trade improvement was entirely driven by exports of oil and other goods to other EU countries, which jumped by 9.1 percent from June.
While that may increase pressure on Prime Minister Theresa May to preserve trade with the EU as she negotiates Britain’s withdrawal, Brexit supporters point to the fact that the bloc sells far more to the U.K. than vice versa. The gap last year was 89 billion pounds.
“The EU has a huge trade surplus with the U.K.,” International Trade Secretary Liam Fox said in Parliament Thursday. “It is even more in their interest than ours to maintain a very open free trading environment.”