UK Construction Sector Continues To Grow
Conditions in the UK’s construction sector are continuing to improve according to the latest Purchasing Managers Index (PMI) for the area. The September PMI Construction number has been revealed as 64.2, this is marginally ahead of the August reported number of 64.0 and easily beats the estimates of analysts that were predicting a fall of in this latest reading to around 63.5. As the British economy continues to power ahead the construction sector is benefiting from a boom in demand for both residential and commercial property developments as well as public infrastructural projects. The first of these areas however may be about to experience some further growth catalyst.
The Bank of England’s (BoE) Financial Policy Committee (FPC) met this morning to discuss the excessive growth that has taken hold of UK house prices since the recovery began. The urgent need to control house price growth and prevent an asset bubble from forming in the property market has prompted the Bank to experiment with macroprudential policies. Earlier in the summer the FPC announced that it expects Britain’s lenders to adhere to it’s guidelines which recommend limits to the multiple of income that a borrow can obtain under a mortgage. Although there is no evidence as of yet of banks breaching these guidelines, if it did happen it turns out that the FPC is powerless to take any action. This morning however it announced that it would be formally taking on powers, to be bestowed on it by the government, that will give it the ability to officially direct lenders to comply. The nature of this new law in terms of reach and penalties has however not yet been revealed.
Limiting the ability to avail of large mortgages will have the effect of cooling prices at the top end of the market. It doesn’t however address the key issues in housing which is supply driven, there is a need for more affordable housing units across the UK, particularly in urban and suburban areas. As the planners address this issue it will create further growth in the construction sector.
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