The monthly Markit/CIPS Purchasing Managers Index (PMI) data released today showed that the construction sector has returned to growth with favourable weather conditions and rise in new businesses.
Today’s data reinforce the belief that the economy is making a strong comeback after a shocking contraction of 0.5% in December and data released yesterday for the manufacturing sector showed activity hit a record high in January.
The news of construction growth pushed the Pound to a three month high against the Dollar and raised the likelihood of Bank of England raising interest rates sooner than previously predicted, in an effort to reign in inflation.
In December, the Markit/CIPS PMI construction activity index had fallen to 49.1 – the first in 10 months due to heavy snowfall. However, the January figure stands at a robust 53.7, showing strong rebound in construction sector.
Terming the December number as an aberration, Ross Walker – economist at RBS said: “Some of this was just a sort of base effect distortion in all probability, but it does suggest that the snow was a blip and we have got back to levels of activity above the pre-weather disrupted period”.
While pound rose, yield on gilt and short sterling futures fell, indicating the market is anticipating a rate hike by the central bank since the economy is back on growth track.
Bank of England’s long standing board member Andrew Sentence said that the bank stands to lose its inflation fighting credibility while Deputy Governor Charles Bean said that the bank may be forced to raise rates if commodity prices continued their upward movement and inflation became embedded in consumables.
“Companies reported that January’s improvement in part reflected a rebound from harsh weather in December, which had contributed to the first fall in activity since February of last year. Looking at the trend in the data over the past two months as a whole, the picture is one of very modest growth, well below the strong pace seen in the first half of last year”. Markit said in its report.
However, for the first time since August, all the three sub-categories of the construction sector showed growth, including housebuilding – which had contracted for four months in a row.