TG: UK construction data cheers markets and boosts sterling
October’s purchasing managers’ index for the building industry shows the sector in rude health, according to analysts
A surge in new work across the UK construction industry in October cheered financial markets and sent the pound close to a 10-week high against a basket of currencies.
Building firms took on new work at the fastest rate for a year, according to the CIPS/Markit purchasing managers’ index (PMI) for the construction industry. The index, published on Tuesday, suggests that the British economy has recovered quickly from the turmoil caused by China’s dramatic slowdown.
The figures came a day after a similar survey showing the UK’s manufacturing sector, which had slipped several gears in response to declining world trade, at its highest level of expansion in 16 months.
Markit said increased output by construction companies appeared to reflect a strong pipeline of work already underway, and faster growth in new orders.
“The latest rise in incoming new work was the steepest since October 2014, with construction companies highlighting new project wins from both public and private sector clients,” it said.
A slow recovery among civil engineering firms dragged down the overall growth figure for the sector, which slowed in October after hitting its fastest pace in six months in September.
The construction PMI slipped back to 58.8 in October from 59.9 in September.
Tim Moore, a senior economist at Markit said: “Another relatively buoyant construction PMI reading indicates that the sector remains in rude health. Rather than acting as a drag on the economy, as suggested by recent GDP estimates, the sector is continuing to act as an important driving force behind the ongoing UK economic upturn.”
He said construction companies noted a rebound in new business flows in October and responded by taking on extra staff at the fastest rate for almost a year.
“Shortages of skilled staff persisted as a result, with the current period of falling subcontractor availability the longest seen in over a decade,” he said.
Richard de Meo, the managing director of the currency hedging firm Foenix Partners, said: “The construction data was a bit underwhelming, but overall we are still on track for 1% growth in the final quarter which is pretty good. My money would still be on the Bank of England hiking rates sometime in the first half of 2016.”
He added: “Sterling is holding up pretty well because of that.”
Sterling was steady against the dollar at $1.54, and 0.25% higher against the euro at €1.40, just off its 10-week high on Monday.
