U.K. Economy Revved Up in April--Update

By Jason Douglas and Wiktor SzaryFeaturesDow Jones Newswires

A batch of business surveys signaled the U.K. economy picked up speed in April, easing concerns that a soft first quarter may foreshadow a deeper slowdown as Brexit talks get under way.

A trio of closely watched surveys published this week by financial information firm IHS Markit Ltd. showed manufacturing, construction and services all grew strongly in April after a slow start to the year.

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Activity in the manufacturing sector expanded in April at the fastest pace in three years, according to Markit's monthly purchasing managers index for the sector, while similar gauges covering construction and services also showed a healthy expansion.

Chris Williamson, Markit's chief economist, said Thursday the three surveys suggest growth in the second quarter could recover to at least 0.4%, an improvement on the 0.3% expansion the economy managed in the first three months of the year, according to a preliminary official estimate published late last month.

The data come as voters prepare to go to the polls June 8 in a national election that is expected to return Prime Minister Theresa May and her governing Conservatives to power with an increased majority in Parliament.

Mrs. May has said a bigger majority will strengthen her hand in coming negotiations with the European Union over the terms of Britain's exit from the 28-member bloc, expected in early 2019.

Voters in some parts of the country are also voting Thursday in elections for city mayors and local councils, contests that will offer clues to the strength of support for the competing parties ahead of the main poll next month.

The slowdown in the first quarter in the U.K. was driven by weakness in consumer spending, as rising inflation and meager wage growth squeezed household budgets. A similarly lackluster performance by consumers weighed on first-quarter growth in the U.S.

Economists cautioned Thursday that Markit's surveys exclude the retail sector, which means they may be overstating the strength of the rebound given concerns about consumer spending.

"Pretty much everyone is expecting growth to slow this year because of a weakening consumer," said Alan Clarke, director of fixed-income strategy at Scotiabank in London.

Underscoring the softness in consumer spending, Bank of England data Thursday showed the number of new home loans approved in the U.K. fell in March to its lowest level in six months, while unsecured borrowing continued to rise as households took on debt to offset the squeeze on income.

BOE officials have warned banks to keep a close eye on borrowers to ensure they aren't taking on loans they can't repay. Officials are expected to keep their benchmark interest rate steady at 0.25% at their policy meeting next week.

Write to Jason Douglas at jason.douglas@wsj.com and Wiktor Szary at Wiktor.Szary@wsj.com

(END) Dow Jones Newswires

May 04, 2017 07:02 ET (11:02 GMT)