LONDON, Feb 3 - Construction activity in Britain expanded at its slowest pace in five months in January, a survey showed on Tuesday, two days before the Bank of England is expected to raise interest rates by a quarter percentage point. The Chartered Institute of Purchasing and Supply said its purchasing managers' index for the sector dropped to 56.3 last month from 59.2 in December. That was its second monthly decline in a row from a 2-1/2 year peak of 60.5 in November. A reading above 50 denotes expansion while any reading below that level signals contraction. News that growth in the interest-rate sensitive construction sector of the economy is slowing comes before an expected rise on Thursday in the benchmark repo rate to 4.0 percent from 3.75 percent. Financial markets did not react to the data. Roy Ayliffe, Director of Professional Practice at CIPS, cast the data in a positive light, although he revealed pressure on companies' bottom lines driven by commodity price rises that is also affecting manufacturers. "National shortages of raw materials have meant purchasing managers have seen a sharp increase in average input costs this month," Ayliffe said.
"Encouragingly, the construction sector has seen a rise in employment this month and firms have reported a strong optimistic outlook that activity should rise in 2004," he said. Indeed, the new orders index, a gauge of future construction demand, read a robust 59.6 in January, down only slightly from a 2-1/2 year high of 61.0 struck in December. And the survey's confidence index rose to its highest in three months, hitting 78.5 in January compared with 76.0 in the prior month. Economists said that in spite of the weaker numbers the construction sector, which accounts for five percent of the world's fourth largest economy, remained in good shape. "These figures are still suggestive of strong growth in the construction sector," said George Buckley, an economist at Deutsche Bank in London.
HOUSING THE DRIVER
Of the three main sectors, housing remained a driver for overall growth although the pace cooled for the second month in a row to its slowest rate since last July. The Housing Activity index fell to 59.1 from 63.7 in December. A robust housing sector had remained a cornerstone of the British economy. Two thirds of Britons own their own homes and have gone on a borrowing binge to fund their shopping, in part based on the rising value of their homes. UK housebuilder Taylor Woodrow Plc said last month the housing market had cooled into the new year. That evidence is backed up by various house price surveys which have showed the market coming off the boil. Commercial construction and civil engineering growth were more stable during the month although their overall rate of growth still lagged housing, CIPS said. While construction employment has risen every month since April 1999, the pace of growth slowed in January alongside easing construction activity. The Employment Index fell to 52.1 in January from 55.2 in the prior month.//