Housebuilders came under pressure on Wednesday after figures showing a surge in inflation dashed hopes for a Bank of England interest rate cut next month.
Barrat Redrow PLC shed 2.7% to lead the drop among its FTSE 100 peers after ONS data showed headline inflation at 3.0% in the year to January, against December’s 2.5%.
Accelerating price rises in January meant inflation had hit its highest rate in ten months, with the figure also exceeding analysts’ expectations.
Money markets in turn cut the chance of an interest rate cut next month to less than a 7% come Wednesday, from 12.5% a day earlier.
Persimmon PLC, Taylor Wimpey PLC and Berkeley Group Holdings PLC were also among blue chip housebuilders to feel the pinch, falling 2.2%, 2.1% and 1.6% respectively.
Deteriorating hopes for back-to-back cuts, after the Bank of England’s reduction in February, and corresponding relief for mortgage rates, hit mid-caps Vistry PLC and Bellway PLC too.
According to Barclays analysts, the next central bank reduction would likely come in May, given January’s uptick was fuelled by select food, core goods and “one-off” services items.
“Sticky borrowing costs are keeping a lid on affordability,” Pantheon Macro analysts added.
However, borrowing costs were likely to have peaked as two-year fixed rate 75% loan-to-value mortgages were estimated to had hit 4.70% in January.
“We estimate that the same rate will fall only slowly to 4.50% by December 2025,” Pantheon said, “costs will likely be more stable in 2025 helping to support consumers’ confidence”.