Marked slowdown in British construction in April

London

GROWTH in Britain's construction industry slowed sharply in April as companies put off decisions ahead of this week's national election, but confidence remained high and hinted at a post-election pickup, a survey showed.

The monthly Markit/CIPS UK construction purchasing managers' index fell to 54.2 last month, its lowest level in 22 months and down from 57.8 in March. The index was below all forecasts in a Reuters poll and followed a similarly weak reading of Britain's manufacturing sector in April.

Britain's overall economic growth slowed sharply in the first three months of this year, data showed last week, a setback for Prime Minister David Cameron who has staked his campaign for re-election on the strength of the recovery. Economists, however, have said that the first-quarter GDP weakness would probably prove to be a blip and the economy would pick up.

A survey of Britain's dominant services sector, due to be published on Wednesday, will give an idea of the breadth of the slowdown at the start of the second quarter of 2015.

Markit said that there were signs of construction companies delaying spending decisions ahead of the May 7 election. But while confidence dipped from a nine-year high in March, employment in the sector grew a touch, a sign that companies expected business to recover soon. The availability of sub-contractors fell sharply again, pushing up their charges by the steepest amount since the survey began 18 years ago.

Separately, this week's UK election has surpassed the Scottish independence referendum as a source of short-term volatility for the pound.

Within two days of Britain's tightest election since the 1970s, one-week volatility on the pound against the dollar, a measure of anticipated price swings, climbed to as high as 18.6 per cent, the most since May 2010. In September, before Scotland voted to remain part of the UK, the measure peaked at 17.5 per cent.

Opinion polls suggesthat neither Mr Cameron's Conservatives nor Ed Miliband's Labour Party will win the May 7 election outright. With the voting results due on Friday morning, both sides will be calculating whether they can put together a majority with the support of one or more smaller parties, including the Scottish National Party (SNP), which campaigned for independence in last year's referendum.

"We've seen some sterling volatility already and I think sterling is a short," George Magnus, a senior independent economic adviser to UBS Group AG in London, said. A short is a bet that an asset will decline in price. "It depends really on what happens in terms of on Friday, and then how long it takes to put a government together, and who is in it and so on," Mr Magnus said. "The SNP will exercise quite a lot of influence over Labour policies and I don't think that's going to be good for the pound."

One-week volatility on the pound is still below the 26.8 per cent level that it reached after the general election in May 2010. The three-month measure, at 10.5 per cent, is down from as much as 12.5 per cent in April, a sign that investors are less concerned about longer-term risks. REUTERS, BLOOMBERG