FTSE 100 gains on positive construction PMI data

The FTSE 100 index has made gains this afternoon (August 2nd) on positive news that UK construction has made an unexpected return to growth.

According to the Markit/CIPS construction purchasing managers' index (PMI), the sector rose to 50.9 last month.

The PMI system operates in that readings under 50 indicate contraction, while any posting over 50 means expansion.

This report has been surprising, because in June the PMI was 48.2 - with the UK construction sector shrinking at its fastest pace in two-and-a-half years.

Economists did not expect to see expansion in the industry last month, with experts predicting a further shrinkage to around 48.7.

The construction industry has been hit hard by the bad weather that blighted the June and July period, as well government spending cuts and lower demand sue to the financial squeeze.

Furthermore, the extra bank holiday in June owing to the Queen's diamond jubilee damaged production.

Conditions have been challenging across the board and yesterday the manufacturing PMI indicated a further contraction, with the factory output plunging to a three-year nadir last month.

Today's surprise return to growth for the construction sector has given the market a much-needed boost, but experts have warned the road ahead is still littered with obstacles.

Chief executive of the Chartered Institute of Purchasing and Supply David Noble - co-author of the report - said: "Last month's construction performance was so bad, that this month there was hope for a positive turnaround. Worryingly, the sharp drop in new business means there is little chance of the sector rebounding quickly."

At 12:10 BST, the FTSE 100 index was higher by 0.3 per cent to an index value of 5734.6 points - a rise of 21.8 points.

Among the biggest climbers on the benchmark were HSBC Holdings and Barclays, which gained 1.7 per cent to 550.0p and 1.6 per cent to 171.0p respectively.