There were no clear winners from today’s interest rate decision, but one clear loser, as the pound extended its falls with traders betting the Bank of England’s rate-rise spree is over.
Housebuilders, which climbed strongly on Wednesday after the weaker-than-expected inflation data, made further steady progress before settling back as the initial euphoria wore off.
Nonetheless, there were gains for Barratt Developments PLC (LSE:BDEV) up 1.8%, Berkeley Group Holdings PLC (LSE:BKG) up 0.8% and Taylor Wimpey PLC (LSE:TW.) up 0.7%, while in the FTSE 250, Bellway PLC (LSE:BWY) rose 1.1%.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, noted housebuilders initially lifted in a “relief wave” but “some gains have been erased as investors assess the prospect of higher interest rates lingering for longer”.
She suggested it may mean that the homebuilding landscape will get tougher before it gets better.
The narrative will now shift to whether this is the peak in interest rates and whether, and how fast, the BoE will then cut rates.
Kallum Pickering, senior economist at Berenberg, expects the BoE to keep bank rate unchanged at 5.25% through to the first quarter of 2024 before the first cut comes in the second quarter of 2024.
For end-2024, he projects a 4.0% bank rate – implying 125 basis points of total cuts next year.
Retailers were another positive feature, with the sector already boosted by a string of results from Next and JD Sports.
A lower peak in interest rates should give consumer spending a nudge in the right direction although that will also depend on the strength of the economy.
Here, the news is not so good with the BoE predicting GDP to rise only slightly in the third quarter.
Underlying growth in the second half of 2023 is also likely to be weaker than expected, it said.
Interestingly, the Bank has seen the flash S&P Global/CIPS UK composite PMI for September that will be released on Friday.
How big a role this played in today's interest rate decision may become apparent – but it suggests it is unlikely to surprise on the upside.
Sterling took a tumble as traders take the view interest rates could have peaked.
The pound is now down 0.7% at $1.2256 with the news in the UK following a more hawkish hold by the US Federal Reserve on Wednesday.
The US central bank signalled one more interest rate rise this year and fewer cuts next, sending stocks lower.
Fawad Razaqzada, market analyst at City Index and FOREX.com, said: "If incoming data continues to support the view that the US economy is holding its own better than the UK, then that should keep the pressure on the GBP/USD for a while yet.
"This is because the Fed has scaled back expectations of its 2024 easing cycle quite significantly, now implying that 50 basis points of rate cuts are likely instead of 100 it had projected back in June," he added.