Pound Rises to Seven-Month High After Construction Report

The pound strengthened to a seven-month high against the dollar as a government report showing construction output accelerated in July added to signs Britain’s economic recovery is gaining momentum.

The U.K. currency climbed to the strongest since January versus the euro as industry data showed house prices rose to a record last month as government measures boosted demand. Sterling also rallied before the Bank of England releases the minutes of its September meeting next week amid speculation policy makers will have to raise interest rates sooner than they have projected. U.K. government bonds advanced for a third day.

“The pound has room to outperform further in the near term because of positive surprises in economic data,” said Arne Rasmussen, head of currency research at Danske Bank A/S in Copenhagen. “The market appears to be more optimistic about the economic outlook than the Bank of England. We think the Bank of England will prove right in the end and the pound appreciation will lose some steam.”

The pound gained 0.4 percent to $1.5866 at 4:43 p.m. London time after rising to $1.5877, the highest since Feb. 1. The U.K. currency appreciated 0.5 percent to 83.70 pence per euro after advancing to 83.57 pence, the strongest since Jan. 18.

Construction Expands

U.K. construction, which accounts for 6.3 percent of the economy, increased 2.2 percent from June and was 2 percent higher than a year earlier, according to the Office for National Statistics in London. House prices increased 0.4 percent from July to an average 233,776 pounds, Acadametrics and LSL Property Services Plc said.

The U.K. economy will expand 1.3 percent this year and 2 percent in 2014, according to the median of 53 analysts in a monthly survey by Bloomberg News. The pace of growth projected for next year would be the fastest since 2007.

Sterling has rallied 7.6 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.6 percent and the euro advanced 3.3 percent.

The Bank of England will boost its benchmark rate from 0.5 percent in the first half of 2015, according to a Bloomberg Global Poll of investors, analysts and traders. Governor Mark Carney has said officials can wait until the end of 2016 before raising borrowing costs.

The central bank will release the minutes of its Sept. 4-5 meeting on Sept. 18.

‘Very Positive’

“The prospects for the pound are very positive over the next 12 months,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London, speaking to Anna Edwards on Bloomberg Television’s “On the Move” program. “U.K. growth is finally recovering. It seems like the U.K. is finally reaching the escape velocity that we’ve been waiting for for several years.”

The yield on the benchmark 10-year gilt fell three basis points, or 0.03 percentage point, to 2.92 percent. The 2.25 percent bond maturing in September 2023 rose 0.22, or 2.20 pounds per 1,000-pound face amount, to 94.27.

Gilts handed investors a loss of 4.6 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries fell 3.8 percent and German bunds slid 2.7 percent.

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