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Warm Weather Helps UK Builders Get Back on Track

In June the UK construction industry enjoyed a stronger than anticipated recovery, getting past an earlier slowdown and moving the Bank of England closer towards an interest rate increase.

The latest survey from the Chartered Institute of Procurement and Supply and IHS Markit found that in June the market experienced the largest upturn in construction material purchases in two and a half years.

The purchasing manager's index activity gauge- which the Bank closely surveys- reached 52.5 in May, up from 53.1 the month before and reaching the highest level in seven months, despite expectations that the reading would be static. Any PMI reading above 50 is a sign of economic growth.

The industry rebound suggests that much of the difficulties experienced by UK builders earlier this year can be attributed to the “beast from the east” and was not due to bigger problems in the construction trade.

Mike Saunders, who is involved in the Bank’s monetary policy committee for rate-setting, dismissed fears of a slowdown by saying that the nation’s economy was continuing to grow at a steady if modest pace, same as the average of the past couple years.

In a press interview, Mr Saunders warned that if the UK economy continues to improve, interest rates would need to rise.

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Threadneedle Street put off an increase in the cost of borrowing after the heavy snowfalls earlier this year was followed by weak economic data. The Bank of England has since raised the possibility of a hike in interest rates this coming August. The Office for National Statistics also raised its economic growth estimate in the first quarter of this year, thanks to improved readings from UK builders.

According to a recent statement by the ONS, the UK economy grew by 0.2% in the first quarter of 2018, despite earlier forecasts for a 0.1% growth.

Onlookers commented that the expansion of Heathrow and other big-ticket infrastructure projects would be important in ensuring that Britain remains a global leader in infrastructure after the UK leaves the EU.

Uncertainty over Brexit has led some businesses to pause construction projects in recent months, which could make government spending a strong incentive for firms to invest in the UK.

The IHS Markit/Cips survey indicated that optimism was stronger outside London, especially in Bristol, the West Midlands, and the North-West. While the house building industry was responsible for a lot of this growth, there weren’t as many new projects for civil engineers, which held back stronger growth.

In spite of this better news,  Samuel Tombs from Pantheon Macroeconomics, an economics consultancy, said the outlook was grim for the coming year as Britain leaves the EU. He said that the number of UK builders in the survey who were expecting industry activity to go up continues to be below the poll’s 20-year average.

Lloyds Bank representative Max Jones said that the sector is hardly robust, with some of the bigger contractors blaming project delays and cancellations on Brexit.”

Specialists in Construction Insurance

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