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Cooling in British Construction PMI

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Cooling in British Construction PMI

The British Chartered Institute of Purchasing and Supply together with Markit Economics have just released their Construction Purchasing Managers Index (PMI) for the month of April. This reading has come in at a surprising 60.8, a reading of 62.0 had been anticipated following last month’s print of 62.5. Despite the unexpected fall off in this key construction industry indicator it still remains at near record elevated levels.

The construction industry, in certain parts of the UK, is struggling to keep up with demand for new homes and house price rises are becoming a cause of concern to the British authorities. The annual growth in the Nationwide house price index was noted earlier this week as being 10.9% and talk is beginning of a bubble in the property market.

The Bank of England’s (BoE) chief economist has expressed worries about the monetary authorities ability to control the housing market. The Bank’s Governor, Mark Carney, however has pointed to other accelerating sectors of the British economy, particularly manufacturing, as evidence that the entire economy is expanding and that growth is not confined solely to the property market.

A broadening of the economic recovery base would be an indicator that the there is not necessarily a bubble forming in the housing sector, but rather the house price growth being experienced by the UK is a natural part of a high performing economy. So long as house price growth is only marginally outperforming GDP growth as a whole there is little cause for concern that a bubble is being created, this is particularly valid when it is considered that house prices are recovering from a very low base.

The regional disparity in house price growth however is a cause for concern, London prices have risen nearly 20% since the recovery began, this is significantly above the economies growth rate and this area would cause concern of a localized house price bubble.

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