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U.K. Construction Unexpectedly Strengthens on Homebuilding

U.K. construction unexpectedly accelerated in October to the fastest pace in six years, led by homebuilding.

An index of construction activity rose to 59.4 in October from 58.9 in September, Markit Economics said today in London. The median forecast of 15 economists was for a decline to 58.7. The gauge has been above the 50 level that divides expansion from contraction since May.

U.K economic growth accelerated to the fastest in more than three years in the third quarter as the recovery continued across all main industries. The Confederation of British Industry raised its forecasts for the economy yesterday and now sees expansion of 1.4 percent this year and 2.4 percent in 2014.

“The future is looking bright for the U.K. construction industry,” said David Noble, chief executive officer of the Chartered Institute of Purchasing & Supply, which sponsors the report. “Housing remains the key driver of the ever-strengthening rebound.”

The pound extended its advance against the dollar after the report and was at $1.5955 as of 9:42 a.m. London time, up 0.2 percent from Nov. 1.

The improvement in construction activity boosted hiring in October, with payrolls rising at the fastest pace in six years, Markit said. While housing growth cooled from its fastest in almost 10 years, it remained the strongest sector. Civil engineering and commercial activity were “robust.”

Demand ‘Catalyst’

Homebuilder Bellway Plc (BWY) said on Oct. 15 that its annual profit rose 37 percent as it benefited from a government initiative to help people with small deposits buy homes and that demand “remains strong in most areas of the country.”

“Help to Buy acted as a catalyst for underlying consumer demand,” Chief Executive Officer Ted Ayres said.

The government program is also boosting house prices. Nationwide Building Society said on Oct. 31 that values rose 1 percent in October from the previous month and were up 5.8 percent from a year earlier.

“Of critical importance to the construction sector going forward is that the economy holds up well over the coming months and that housing market activity sees sustained healthy, but not excessive, growth,” said Howard Archer, an economist at IHS Global Insight in London.

U.K. manufacturing expanded for a seventh month in October as overseas demand grew, Markit said last week. A gauge of factory activity slipped to 56 from a revised 56.3 in September.

Britain’s services sector also expanded last month, economists said before a report tomorrow. An index of activity slipped to 60 from 60.3 in September, according to the median of 30 estimates in a Bloomberg survey.

The Bank of England will probably keep policy unchanged this week as Governor Mark Carney prepares to present new forecasts on Nov. 13. It will keep the benchmark rate at a record-low 0.5 percent, while the bond-purchase plan will stay at 375 billion pounds ($598 billion), according to Bloomberg surveys. The bank will announce the decisions on Nov. 7.

In the euro area today, a manufacturing index rose to 51.3 in October from 51.1 in September. That matched an initial estimate published on Oct. 24.

To contact the reporter on this story: Eshe Nelson in London at enelson32@bloomberg.net

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

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