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U.K. Construction Growth Accelerates as House Prices Rise

Photographer: Simon Dawson/Bloomberg

Markit said residential construction output increased the fastest since June 2010 last month. Close

Markit said residential construction output increased the fastest since June 2010 last month.

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Photographer: Simon Dawson/Bloomberg

Markit said residential construction output increased the fastest since June 2010 last month.

U.K. construction growth accelerated to the fastest in three years and house prices increased to the highest since 2008 as government measures boosted property demand.

An index of construction activity rose to 57 in July from 51 in June, Markit Economics and the Chartered Institute of Purchasing and Supply said today in London. That marked the third month above the 50 mark that divides expansion from contraction. Separately, Nationwide Building Society said home values increased 0.8 percent in July to an average 170,825 pounds ($259,000), the most since June 2008.

Britain’s economy is showing signs of strengthening after gross domestic product increased 0.6 percent in the second quarter, and the National Institute of Economic and Social Research raised its growth forecasts today, citing a pickup in consumer spending. At the same time, the housing market is getting a boost from government measures aimed at supporting property demand.

“Homes are the beating heart of this rapid recovery in the construction sector, backed by a solid expansion in civil engineering and commercial activity,” said David Noble, CIPS chief executive officer. “Firms are starting to believe this is the real deal for the recovery.”

The construction index reading exceeded the 51.5 median forecast of 13 economists in a Bloomberg News survey. The pound extended its advance against the dollar after the report was published. It traded at $1.5158 as of 10:41 a.m. London time, up 0.3 percent from yesterday.

House Prices

Markit said residential construction output increased the fastest since June 2010 last month. Civil engineering returned to growth, while commercial construction output rose the most since May 2012. Builders added jobs at the fastest pace since December 2011, according to the report.

Nationwide said that house prices have risen 3.9 percent in the past year as the government’s Help-to-Buy program and the Bank of England’s Funding for Lending Scheme eased access to mortgages. Taylor Wimpey Plc (TW/), the U.K.’s second-largest homebuilder by volume, said July 31 first-half profit increased 5.3 percent.

“An improvement in the availability and a reduction in the cost of credit, partly as a result of policy measures” are boosting demand, said Robert Gardner, chief economist at Nationwide.

Economic Outlook

A report yesterday from Markit showed manufacturing expanded the fastest in 28 months in July. A gauge of service companies to be published Aug. 5 will also probably show an increase, according to a survey of economists.

The Bank of England kept its bond-purchase target at 375 billion pounds ($569 billion) and its benchmark interest rate at 0.5 percent yesterday as officials focus on providing guidance on policy to investors. Governor Mark Carney will publish a report on the implementation of forward guidance on Aug. 7.

Niesr forecast today that the U.K. economy will expand 1.2 percent this year and 1.8 percent in 2014. That compares with May predictions of 0.9 percent and 1.5 percent respectively. It cited a “robust expansion of consumer spending” for the upgrade, while noting that growth remains subdued.

“Such revisions do not change the general outlook for U.K. economic growth,” Niesr economist Simon Kirby said. “One of a gradual gain in economic momentum, but not to the degree that is consistent with economic recovery.”

Niesr sees consumer spending rising 1.4 percent this year and 1.7 percent next year.

“This is the most confident we have felt in our four-year history,” David Lockhart, chief executive of real-estate investor NewRiver Retail Ltd. (NRR), said after the company invested in a 24th U.K. shopping mall in July.

U.S. Payrolls

U.S. employers probably added about as many workers in July as the prior month, helping trim the unemployment rate, economists said before a report today.

Payrolls rose by 185,000 workers after a 195,000 gain in June, according to the median forecast of 92 economists in a Bloomberg survey. The jobless rate fell to 7.5 percent, matching a four-year low, from 7.6 percent. Other data may show personal spending climbed in June by the most in four months.

The Labor Department is scheduled to publish the payrolls report at 8:30 a.m. in Washington. Bloomberg survey estimates ranged from increases of 23,000 to 225,000.

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

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

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