September 3, 2013 / 8:35 AM / 5 years ago

UK construction PMI hits highest level in Aug since Sept 2007: Markit/CIPS

LONDON (Reuters) - British construction activity grew at the fastest pace in nearly six years in August, driven by residential building, a survey showed on Tuesday, in another sign that the UK’s economic recovery is gathering pace.

Construction workers build a new residential property development in north London, August 6, 2013. REUTERS/Neil Hall

The Markit/CIPS construction purchasing managers index (PMI) rose to 59.1 last month - its highest level since September 2007 - from 57.0 in July, staying far above the 50 threshold for growth for a fourth month.

Economists polled by Reuters had expected a slight slowing in the pace of growth.

While fears persist that Britain is flirting with a new housing bubble fuelled by government stimulus, the PMI showed residential building output picked up at the fastest pace since June 2010.

Analysts have warned that without growth in housing construction, government help to ease buyers’ access to the market may just end up pushing property prices higher.

The PMI also showed civil engineering construction enjoyed its best month since September 2007.

“The latest construction PMI figures are yet another indication that the UK economy has performed impressively over the summer months,” said Tim Moore, senior economist at Markit.

“A steep upturn in civil engineering activity suggested that public sector demand has joined residential building as a key driver of construction output growth during August.”

Construction was the biggest drag on Britain’s gross domestic product between January and March but returned to growth in the second quarter.

The improving construction PMI has coincided with rising house prices over the last few months.

Finance minister George Osborne said on Sunday that Britain is not experiencing a runaway rise in house prices, after data on Friday from mortgage lender Nationwide showed prices rose strongly for the fourth month running in August.

A separate PMI on Monday showed Britain’s manufacturing activity grew much faster than expected in August.

The run of positive data poses a challenge for members of the Bank of England’s Monetary Policy Committee, whose plans for future policy hinge on a cautious outlook for growth.

They decide policy on Thursday, and economists polled by Reuters expect no change.

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Reporting by Andy Bruce; Editing by Hugh Lawson

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