UK Homebuilder and Property Stocks Surge on Slower Inflation Data
UK homebuilder and property stocks experienced a significant increase on Wednesday following the release of slower than expected inflation data. The Office for National Statistics reported that annual headline consumer prices in Britain rose by 6.7% in August, down from 6.8% the previous month and below economists’ forecasts of 7%.
This news led to a drop in yields on the 2-year UK government bond, as the market adjusted its expectations for a potential interest rate hike by the Bank of England. Bloomberg reported that the probability of a rate increase on Thursday fell from approximately 80% to 50% following the release of the data.
Melanie Baker, senior economist at Royal London Asset Management, commented on the situation, stating, “In the context of still strong domestic inflation pressure, I expect the Bank to hike rates once more by the end of the year.” However, she also noted that the Bank may choose to keep rates on hold in September and wait for further data and their next forecast update in November.
Goldman Sachs analysts shared a similar sentiment, stating, “Combined with their recent dovish commentary, we now expect the Monetary Policy Committee to keep Bank Rate unchanged tomorrow.” They also adjusted their forecast for the terminal policy rate to 5.25%, down from 5.5%.
The prospect of borrowing costs stabilizing had a positive impact on interest rate-sensitive sectors in London. Shares of housebuilders Persimmon, Barratt Developments, and Taylor Wimpey rose between 4% and 5%, while property groups like British Land and Land Securities also saw gains.
These developments contributed to a 0.6% increase in the FTSE 100 index. However, this rise was limited by a decline in energy stocks such as BP and Shell as oil prices fell from 10-month highs.
In other news, shares of London-listed education company Pearson fell by 3%. Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, explained, “Bird hasn’t been in the top job for too long, but it’s been long enough to oversee a significant transformation of Pearson’s priorities in its bid to secure a more tech-focused future. That said, investors rarely like to see a respected leader say goodbye, and there are clearly some initial nerves.”
The positive performance of homebuilder and property stocks in the UK mirrored similar gains in Germany’s DAX index, which rose by 0.5%, and France’s CAC 40, which added 0.3% as banks rallied following a slow start to the week.
Overall, the slower than expected inflation data provided a boost to the UK housing market and property sector, with hopes rising that the Bank of England may pause its interest rate hikes in the near future. However, economists and analysts remain cautious, emphasizing the need for further data and forecasts before drawing any definitive conclusions about future monetary policy decisions.
More detail via MarketWatch here… ( Image via MarketWatch )