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UK Housing and Construction Soften

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UK Housing and Construction Soften

The UK’s Chartered Institute of Purchasing and Supply has just published it’s latest Purchasing Managers Index (PMI) for the Construction sector, the headline rate is 62.5. This compares against a consensus expectation of 63.0 and a previous month figure of 62.6.

The Construction PMI number is generally an important indicator for a recovering economy, it is an early indicator of growth but does not directly feed into the GDP numbers.

In a related sector, the Nationwide Housing Prices data for February was also released in the UK this morning. This showed a slight cooling in growth for the third month straight. The month on month figure was published at 0.4% growth compared to 0.7% last month, market consensus was for an improvement to 0.8%. The year on year number also missed, the actual figure was reported as 9.5% against expectations of 9.6%, this number however showed a very slight improvement over the January reading of 9.4%.

Average house prices in the UK are currently running just over GBP180k, in nominal terms this is just 3% below the peak of 7 years ago.

The recent UK budget saw an unanticipated extension to the Help to Buy scheme, this is providing potential buyers with more time to make their decision and application thus deferring purchases for some months. When this fact is taken into consideration it makes the slight fall off in housing demand more understandable.

The UK is in a healthy overall position and the Bank of England is preparing to tighten up monetary policy in order to steady growth. A further sign that the Bank is preparing the ground came yesterday from the BoE’s Financial Policy Committee (FPC) which claimed that investors may be ‘too relaxed’ about what will happen when interest rates start to rise to more ‘normal levels’. The FPC went on to note that recent reversals in monetary policy in ‘rich countries’ had not had a significant market impact but that this should not lead to complacency among investors when the UK inevitably begins it’s cycle of rate hikes.

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