Official data this week show the UK economy is holding up despite Brexit uncertainty

Data from the Office for National Statistics released on Friday showed UK construction output rising 2.5% in April, the biggest monthly increase since January 2014. The reading beat economists' expectations for a 1.7 percent increase and compared to a 3.6 percent dip in March.  Given the sharp fall in construction output  in Q1, and particularly the big decline in March,  a sizeable rebound was expected in April.

Construction firms added 2.9 percent more "new work" in April than they did in March, while repair and maintenance work rose by 1.9 percent. Housebuilding by the private sector grew by 2.7 percent over the month and was up by 5.8 percent over the past year. Construction work by the public sector, however, slowed by 4.4 percent during the month and was one-fifth lower in April 2016 compared to April 2015.

"The underlying fundamentals for the construction sector remain strong, so the modest fall in new orders may reflect a slight impact from uncertainty around the EU Referendum. We would also expect new orders in Q2 to suffer a greater impact from this same uncertainty; however, this could all be offset in the second half of the year once the vote is out of the way," said Professor Noble Francis, economics director at the Construction Products Association (CPA).

The official construction data paint a brighter picture of the economy, however, the reading is still 3.7 percent smaller than it was this time last year. The three months to April also showed a contraction of 2.1 percent - the sharpest in just over three years. Moreover, monthly figures for construction are inherently volatile and the ONS has said that some of the rise may linked to seasonal adjustment effects around the Easter holidays. Bank of England has also said economic data is likely to be hard to interpret in the run-up to the vote on Brexit.

Business surveys have shown the building sector struggling in recent months. The Markit/CIPS Construction PMI found inflows of new work falling for the first time in just over three years in May, linked in part to uncertainty about Brexit. That said, recent official data suggest the outlook may be brightening slightly. Upbeat UK construction output which follows a similar surprisingly upbeat industrial data earlier this week suggests UK economy probably started Q2 on a firmer footing. Exports grew at their fastest pace since the crisis in April, while manufacturing output also climbed by 0.8 per cent, smashing expectations for a small decline.

Official data out this week have shown the UK economy could be holding up despite fears about uncertainty and a slowdown ahead of the EU referendum. However, one good month of data is not enough to offset the industry's broader decline over the past 12 months. Sterling saw muted reaction to the data, cable edged lower post release and was trading at 1.4420 at 0830 GMT.