LONDON Britain's construction sector returned to growth in July but house-builders suffered another sharp contraction due to higher interest rates and fears about the outlook for the economy, a survey showed on Friday.

The S&P Global/CIPS construction Purchasing Managers' Index (PMI) recovered to 51.7, its highest level since February and up from June's five-month low of 48.9.

A sub-index measuring the house-building sector picked up to 43.0 from June's 39.6 - the lowest since Britain's economy was stuck in its first coronavirus lockdown in May 2020 - but still a long way below the 50.0 no-change level.

The Bank of England (BoE) has raised borrowing costs steadily since December 2021 and took its benchmark interest rate to a 15-year high of 5.25% on Thursday.

The PMI survey showed that, unlike house-building, civil engineering and commercial construction gathered speed in July.

The rate of inflation for building materials was much softer than the average of the first half of 2023, pushed down by weaker demand and competition among suppliers.

Business confidence in the sector edged up after dropping in June to its lowest since January.

S&P's all-sector PMI, which includes services and manufacturing PMI data released earlier in the week, dropped to a six-month low of 50.9 from June's 52.5.

Britain's economy looks set to grow only marginally over the next three years, according to the BoE's latest forecasts. Some economists think a recession is approaching.

(Reporting by William Schomberg; Editing by Toby Chopra)