* Q1 construction output revised higher to 1.5 pct
* Upward revision points to stronger Q1 GDP growth
* Annual construction output slows in April
* Slowdown may be reinforced by government move, rate bets (Updates throughout)
LONDON, June 13 (Reuters) - British construction output grew faster than previously thought in the first quarter, new figures showed on Friday, but could slow in the next three months, particularly after the government took steps to cool the housing market.
Finance minister George Osborne said on Thursday that he would give the Bank of England stronger powers to curb mortgage lending, while BoE Governor Mark Carney said interest rates could rise sooner than financial markets expect.
The comments sent sterling and short-dated British government bond yields soaring and caused shares to plunge, with housebuilders particularly hard hit. Some 1.7 billion pounds ($2.85 billion) has been wiped off the value of the six housebuilders and two property groups.
Economists say Osborne's announcement means the Bank may adopt a more direct approach when trying to curb mortgage lending. It is expected to announce more controls after its Financial Policy Committee meeting next week.
The moves should help take some heat out of the housing market but could also hurt construction at a time when the government is trying to tackle Britain's long-standing housing shortage and to support first-time buyers before 2015 elections.
"Such a move could further dampen mortgage activity with eventual read-across to the house building sector over the months ahead, perhaps providing a modest drag to otherwise positive momentum in the UK's macro recovery," said Victoria Clarke (Toronto: CKI.TO - news) , an economist at Investec (LSE: INVP.L - news) .
Britain's construction sector was hard hit by the financial crisis but has recovered recently along with the housing market, buoyed by record-low interest rates and rapidly falling unemployment.
Construction output rose 1.2 percent in April, picking up speed after a decline of 0.2 percent in March.
The Office for National Statistics also raised its estimate of construction output for the first quarter to 1.5 percent from 0.6 percent previously. That would add 0.1 percentage point to gross domestic product over that period.
Britain's economy kept up last year's momentum in the first quarter, growing 0.8 percent. Construction and the housing market played a key role.
But Thursday's data also pointed towards some slowdown in construction in the near term, even before the government indicated it would tighten its regulation of the housing market.
On an annual basis, output slowed to 4.6 percent in April from 6.8 percent in March as the building of public housing slowed.
Osborne's announcement of changes to planning rules that he said would allow as many as 200,000 homes to be built on former industrial sites in urban areas also seemed to have little effect, against expectations of earlier monetary tightening.
"The central bank is gearing up to take action. As with everything last night, it is the change in tone that was most significant, rather than the precise measures announced," said Rob Wood, the chief UK economist at Berenberg.
Options open to the FPC to curb the housing market include making banks hold more capital against certain types of home loans or urging caps on how large mortgages can be relative to a borrower's income - something analysts think is now more likely after Osborne said he would give the power to the BoE (Shenzhen: 000725.SZ - news) to impose caps on loan-to-income and loan-to-value ratios.
Previously, it only had the ability to recommend that banks do this. Such caps are seen as politically sensitive because they could make it harder for first-time buyers to get on the property ladder.
"I think loan-to-income ratios and higher interest rates will affect mortgage approvals and in the end housebuilders should respond ... so you could see a drop in construction in the back end of the year if that all feeds through," Clarke said.
A separate survey carried out by Markit recently showed Britain's construction industry, while still robust, slowed further in May to a seven-month low, while mortgage approvals fell to their lowest level in nine months in April. ($1 = 0.5956 British Pounds) (Additional reporting by Kate Holton; Editing by Larry King)