UK housebuilders were among the strongest performers on Friday as investors returned to the sector on growing expectations of lower interest rates and easing geopolitical tensions.
Persimmon PLC (LSE:PSN) climbed 3.9%, Barratt Redrow PLC (LSE:BTRW) gained 3.7%, Taylor Wimpey PLC (LSE:TW.) advanced 2.9%, while Vistry Group PLC (LSE:VTY) outpaced its peers with a 5.1% rise.
The rally came despite fresh figures showing the UK economy contracted by 0.1% in April. Rather than unsettling markets, the weaker-than-expected GDP data strengthened the view that the Bank of England could have more scope to cut interest rates in the months ahead to support economic activity. The BoE's rate-setting committee meets again next week. Before today's GDP reading, analysts had expected the base interest rate to be held at 3.75%.
For housebuilders, the prospect of a rate cut later this year is a major positive. Lower interest rates can translate into cheaper mortgage deals, improving affordability for buyers and helping to stimulate demand in a market that has been constrained by higher borrowing costs over the past two years.
Sentiment was also lifted by hopes that a peace agreement in the Middle East could be drawing closer. The prospect of reduced disruption to global energy supplies pushed oil prices lower, easing concerns that inflationary pressures could reaccelerate.
At the same time, government bond prices rose, sending yields lower as investors shifted towards the belief that central banks are more likely to cut rates than resume tightening. The move in bond markets reinforced expectations that the interest rate cycle is turning in a direction that favours rate-sensitive sectors such as housebuilding.
The sector has endured a difficult period since borrowing costs began rising, with concerns over affordability weighing on sales volumes and investor sentiment. However, there have been signs of resilience in the housing market, including steadier demand and improving mortgage activity.
