Building’s brisk growth driven by new houses

BRITISH builders are recovering rapidly as the economy begins to turnaround, recording the fastest expansion in business for over six years in November.

The latest purchasing managers’ index (PMI) from Markit and the Chartered Institute of Purchasing and Supply hit its highest level since August 2007. On its own, residential construction surged at the quickest pace in a decade.

The headline figure reached 62.6, far above the neutral 50 mark, with both output and employment at their highest since before the financial crisis.

“Improving house building is particularly welcome news given that a shortage of properties is a major factor repeatedly putting upward pressure on UK house prices, but the fact remains that there needs to be extended, strong house building to make significant inroads into the problem,” said Howard Archer, chief UK economist at IHS Global Insight.

Barclays researchers noted that there are already signs that the quick growth of construction is putting pressure on firms, as the availability of subcontractors is decreasing, while they begin to hike their rates.

The news follows Monday’s manufacturing PMI, which was the highest in two and a half years, suggesting that growth will be broad based in the final quarter of the year.

The PMI figure for the services sector, by far the largest component of the UK economy, will be released today.

Adding a note of caution, Markit’s chief economist Chris Williamson said that policy decisions in recent weeks could weigh heavily on construction firms: “The survey was conducted just prior to the announcement of the Bank of England’s decision to rein in the household-focused element of the Funding for Lending Scheme in the new year, which may have diminished some firm’s optimism regarding the outlook.”