UK construction warms up after harsh winter: PMI

LONDON (Reuters) – British construction activity rebounded faster than expected last month after succumbing to snow in March, but the upturn did little to alter the view of investors that the Bank of England will leave interest rates unchanged next week.

Wednesday’s IHS Markit/CIPS UK Construction Purchasing Managers’ Index (PMI) jumped to 52.5 in April from 47.0 in March. That was comfortably above the median expectation of 50.5 in a Reuters poll of economists and back above the 50 line that separates growth from contraction.

Sterling rose from near a three-and-a-half-month low against the dollar before the report.

David Cheetham, a market analyst for currency brokers XTB Online Trading, said:

“Whilst it is improbable that this (data) will bring a rate hike back to the table in next week’s BoE meeting, it is a pleasing development nonetheless.”

Survey compiler IHS Markit said the recovery was “somewhat underwhelming” after the snowstorms dubbed “the Beast from the East” hit the sector in late February and early March.

Looking at the PMI over the three months to April, smoothing out a sharp fall in March and a bounce-back last month, the survey showed construction activity was barely growing.

Tim Moore, economist at IHS Markit, said:

“(The survey) provides an indication that the construction sector has been treading water at the very best in recent months.”

Construction accounts for 6 percent of British economic output. A 3.3 percent fall in output in the sector in the first three months of the year was largely responsible for a sharp slowdown in growth for the whole economy.

Official statisticians said the first-quarter weakness appeared to have been caused by more than just snow, and economists are keeping a close eye on whether surveys show a recovery in April, or it there is underlying weakness..

A separate survey covering Britain’s manufacturers, which was published on Tuesday, showed growth in that sector slowed to a 17-month low in April, sending sterling below $1.37 for the first time in more than three months.

Even before this week’s PMIs and weak overall economic growth data for the January-March period last week, Governor Mark Carney had suggested the BoE might not raise rates to a new post-financial-crisis high of 0.75 percent on May 10.

Wednesday’s PMI showed some signs of a brightening mood in construction. Business expectations rose to an 11-month high in April, while new construction orders grew for the first time in four months – albeit barely.

Builders were doing better outside of London, accountancy firm MHA MacIntyre Hudson said.

Brendan Sharkey, a partner at the firm who focuses on construction and property companies, said:

“Today’s figures may give the impression the sector is flat-lining, but the truth is that outside of London the housing market is ticking over nicely.”

The PMI for the much larger services sector is due on Thursday.


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