By David Milliken
LONDON (Reuters) - British construction picked up speed last month, unexpectedly growing at its fastest pace since September 2007, a survey of purchasing managers showed on Monday.
The Markit/CIPS construction PMI rose to 59.4 in October, beating economists' expectation that it would hold steady at September's reading of 58.9.
The figures were the latest in a series of positive economic figures and followed a strong reading for the manufacturing sector on Friday.
Economists will now turn their attention to Tuesday's services PMI, which covers private-sector firms outside the retail sector and casts light on a much larger part of the British economy than construction.
Sterling rallied against the dollar after Monday's data and the brighter economic news caused the spread between British and German government bond yields to widen to its greatest since late September.
"UK construction output continues to rise like a phoenix from the ashes, with housing, commercial and civil engineering activity all seeing strong rates of expansion at the start of the fourth quarter," said Markit economist Tim Moore.
Construction was one of the hardest-hit sectors of the British economy in the aftermath of the financial crisis, as housing market activity slumped and the government and businesses axed building projects to save money.
But it has picked up this year, and in the three months to September it expanded by 2.5 percent according to official data, the fastest rate since the second quarter of 2010.
It is nonetheless a relatively small part of Britain's economy.
"While evidence that the construction sector is continuing to gain momentum is good news for overall growth prospects, it needs to be remembered that the sector only accounts for 6.3 percent of national output," said IHS Global Insight economist Howard Archer.
House building was the strongest sector of construction for another month - something likely to please the government, which expanded a scheme to help home-buyers at the start of October which also aims to bolster the supply of new homes.
"Of critical importance to the construction sector going forward is that the economy holds up well over the coming months and that housing market activity sees sustained healthy but not excessive growth," Archer said.
British property prices have been soaring, something that has triggered concern among some analysts about sustainability.
(Editing by Jeremy Gaunt)