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British Construction Shrinks Less Than Forecast, Markit Says

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May 2 (Bloomberg) -- U.K. construction shrank less than economists forecast in April as homebuilding strengthened after cold weather during the first quarter.

An index of activity rose to 49.4 from 47.2 in March, Markit and the Chartered Institute of Purchasing and Supply said today in London. Economists forecast a reading of 48, based on the median of nine estimates. Still, the index remained below the 50 level that divides expansion and contraction for a sixth month. The report also showed that new business fell for an 11th month, the longest period of decline since 2008-2009.

Construction was one of the main weak spots of the economy in the first quarter, shrinking 2.5 percent and knocking 0.2 percentage points off gross domestic product. While the increase in the index in April may reflect an “element of catch-up after severe weather delays,” Markit said it indicates construction may be less of a drag this quarter.

“There are encouraging signs that the economy may be establishing a slightly firmer footing,” said Howard Archer, an economist at IHS Global Insight in London. While “still weak,” the construction survey “does at least offer hope that the sector could be past the worst.”

The pound rose 0.1 percent against the dollar and was trading at $1.5571 as of 10:34 a.m. London time. The yield on the 10-year gilt gained 3 basis points to 1.68 percent.

Stable Employment

Construction employment was “broadly stable” in April and input costs rose at the slowest pace since June, Markit said. Housing activity was the strongest since April 2012. More than twice as many builders anticipate an increase in their output over the next twelve months as those that forecast a reduction, according to the report.

“This is a reasonable signal that things are a bit better in the industry,” CIPS Chief Executive Officer David Noble said. “That said, construction is still contracting and witnessing marginal declines in new orders.”

A survey yesterday by Markit showed that manufacturing barely shrank in April, with a factory index rising to 49.8 from 48.6. Services probably maintained growth last month, economists said before a third report scheduled for tomorrow.

In the euro area, a factory gauge declined to 46.7 from 46.8, Markit said today. While that’s above an initial estimate of 46.5 on April 23, the index has been below 50 for 21 months.

The ECB’s Governing Council will cut its benchmark rate today to a record low 0.5 percent from 0.75 percent, according to the median of 70 economists’ estimates in a Bloomberg survey.

The Bank of England, which kept its bond-buying stimulus program on hold last month, will hold its next policy meeting on May 8-9. BOE official Ben Broadbent said yesterday there are more reasons to be optimistic about the economy.

“If you ask me are there signs other than just our forecast that the economy is going to grow over the next six months, I’d say yes, and there are probably more of those signs than in the middle of last year,” he told reporters in London. Still, the recovery is “a lot weaker than a normal recovery and weaker than even the average.”

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

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

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