U.K. Construction Expands as Report Points to Modest Recovery

U.K. construction unexpectedly expanded in July, according to a report today that signaled that any recovery for the industry may be modest.

A gauge of building output rose to 50.9 from 48.2 in June, which was a 2 1/2-year low, Markit and the Chartered Institute of Purchasing and Supply said in a statement in London today. While the reading was higher than economists’ median forecast and above the 50 level that divides contraction from expansion, the index remains below its long-run average of 54.2.

The Bank of England will probably keep its bond-purchase target unchanged today as policy makers wait to gauge the impact of last month’s stimulus expansion and a plan to boost credit. Britain’s economy shrank at the fastest pace in more than three years in the second quarter, dragged down by a 5.2 percent drop in construction.

“There was some progress, with a slight boost in performance, but the external operating environment remains depressed,” David Noble, chief executive officer at CIPS, said in the statement. “Worryingly, the sharp drop in new business means there is little chance of the sector rebounding quickly.”

Economists had forecast a reading of 48.7 for the construction index, according to the median of nine estimates in a Bloomberg News survey. Markit said most of the growth in July was in the commercial sub-sector, as house building and civil engineering activity continued to decline. A gauge of new work declined, it said.

Manufacturing Slump

The pound erased its loss against the dollar immediately after the report was published before slipping back. It traded at $1.5530 as of 9.44 a.m. in London, little changed from yesterday.

A manufacturing survey published yesterday showed that U.K. factory output contracted the most in 38 months in July. Gross domestic product fell 0.7 percent in the three months through June, according to data last week.

The Bank of England will keep its target for asset purchases at 375 billion pounds ($582 billion), according to the median estimate of 40 economists in a Bloomberg News survey. Economists in a separate poll forecast officials will leave the benchmark interest rate at a record low of 0.5 percent. The bank will announce the decision at noon in London.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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