Pound falls to $1.458 after collapse in construction and industrial data point to pre-election problems for the Chancellor
Sterling has hit a five-year low against the dollar, as a raft of weak economic data suggested the UK economy will register a significant slowdown in the first three months of the year.
The pound hit $1.458 in afternoon trading, its lowest level since before the last General Election, as figures from the Office for National Statistics revealed industrial production and construction had slowed in February.
Output in Britain’s building sector registered a surprise 0.9pc contraction in February, according the ONS, providing further evidence the industry has significantly cooled off at the start of the year.
The slowdown, which was far below economists’ expectations of 2.2pc growth, failed to reverse a 2.5pc contraction in January. When compared to the same point last year, construction output was down 1.3pc, marking the second successive annual reduction in construction industry growth.
The numbers suggest first quarter economic growth will be weaker than the 0.6pc seen at the end of last year, according to Chris Williamson, economist at Markit.
Mr Williamson believes the numbers will add ammunition to those calling for a further easing in monetary policy from the Bank of England.
“The data provide further evidence to support the case of interest rates to remain on hold, and will add to chatter that policy may even need to be loosened further,” he said.
However, an estimate of GDP growth from a prominent think-tank remained optimistic about the UK’s economic performance, forecasting a 0.6pc expansion from January to March.
The National Institute for Social and Economic Research (Niesr) said growth continued at a “reasonable pace”, but calculated weakness in production and construction hurt output by 0.15pc.
A report from Royal Bank of Scotland predicted sterling could hit a low of $1.35 against the US dollar as any new government may be too weak to restore order to public finances.
In a report sent to the US Congress, Washington’s Treasury noted the fear of protracted coalition negotiations and uncertainty over the future course of economic policy was “broadly perceived as a material downside risk for businesses and investors”.
Growth in new housing builds, infrastructure and repair and maintenance all contracted in the second month of the year compared to January, according to the ONS.
Separate figures from Markit showed some builders were choosing to delay investment decisions in the run up to the general election in May.
Michael Thirkettle, chief executive of property consultancy McBains Cooper said the data was bad news for people looking to get on the property ladder.
“The further fall in housebuilding will have a knock-on effect in terms of increasing prices because of the shortage of housing supply compared to demand,” said Mr Thirkettle.
Industrial production figures from the ONS also disappointed, with a decline in the oil and gas industry driving paltry 0.1pc growth, below analyst estimates of 0.3pc.
Manufacturing represented the best performing sector however, growing by 0.4pc in February.
“More up-to-date survey data suggest the economy is showing signs of reviving again, which suggests that the next move in interest rates will be a rise, but that there’s little likelihood of rates being hiked this year,” said Mr Williamson.
The ONS’s first estimate of quarterly growth will be published on April 28.
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