U.K. Homebuilding Expands at Fastest Rate Since 2003

U.K. homebuilding expanded at the fastest pace in more than a decade in July as record-low interest rates and government stimulus measures helped construction grow for a 15th month.

Markit Economics said its Purchasing Managers’ Index for the industry declined to 62.4 from 62.6 in June. Economists had predicted a steeper drop to 62. A gauge of residential building rose to 68, the highest level since 2003, and job creation increased at the fastest since the survey began in April 1997.

The data add to evidence that the economy is strengthening in the third quarter and signal a rebound for construction after official data showed a 0.5 percent contraction in the three months through June. A survey of Bank of England agents in July reported “activity had continued to rise strongly.”

“Construction companies have performed impressively so far this summer,” which may counter the weakness seen in the official data, said Tim Moore, an economist at Markit in London. The “sector is enjoying its strongest cyclical upswing since the global financial crisis.”

BOE officials are due to meet this week to discuss the latest economic data and will probably leave their key rate at a record-low 0.5 percent. While Governor Mark Carney has said the time to normalize rates is “edging closer,” he’s also said there’s room for more spare capacity to be eroded before tightening begins.

‘Favorable Conditions’

The strength in homebuilding was attributed to “favorable funding conditions and strong demand for new housing starts,” Markit said. An index of civil engineering also expanded at a sharper pace in July and a gauge of commercial construction weakened.

The government has stimulated homebuilding by offering equity loans and mortgage guarantees to home buyers. The Greater London Authority is offering interest-free credit to affordable home developers as it seeks to increase the number of dwellings being built.

Berkeley Group Holdings Plc, a homebuilder focused on London and southeast England, in June reported a 40 percent increase in annual earnings as the company constructed almost a third more homes than at the market’s 2007 peak.

The Bloomberg EMEA Home Builders Index of 11 stocks has dropped 2.3 percent this year, while the benchmark FTSE 100 Index has lost 1.1 percent.

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

To contact the editors responsible for this story: Andrew Blackman at ablackman@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net Emma Charlton, Jeffrey St.Onge

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