Housebuilders listed on the FTSE 100 have taken a notable knock following a sharper-than-expected rise in inflation last month.
Vistry, Berkeley and Persimmon were among those to be adversely affected by the 2.3% CPI inflation reading for October, led a raft of economists to suggest interest rates will not be cut again next month.
Concerns over the impact of this on mortgage rates, and subsequent demand in the property market, therefore weighed on the sector’s stocks.
Chris Beauchamp, chief market analyst at IG, said: “Tuesday afternoon’s recovery in stock markets has been waylaid by news that Ukraine has now used British missiles against Russian targets, while tech stocks have been further hit by some pre-Nvidia earnings nerves.
“Now that the initial post-election euphoria has faded, it is clear that markets are struggling for a catalyst to provoke a new rally.”
Vistry Group shares dropped to a new 12-month-low after the housing firm announced the departure of its operations chief after recent profit warnings.
Shares in Vistry, the biggest faller on the FTSE 100 were, finished 6% lower, down 36.5p to 634, as it was also dragged by broader weakness in the sector.
Nathan Emerson, CEO at Propertymark, commented: “It is disappointing to see that inflation has increased considering the overall trend throughout the year.
“However, there are many national and global factors that impact the UK economy, hopefully inflation will better stabilise, and the UK economy should continue to adapt, no matter what happens in response to national and international events.
“With housing playing a vital role in the growth of the economy, over time it would be positive to see interest rates drop to levels not seen since 2019, in order that more people can afford to enter the housing market for the first time, or make their next all-important home move.”
Also reflecting on the rise in inflation to 2.3% in October, IEA economics fellow, Julian Jessop, said: “UK inflation rebounded a little more than expected in October, to 2.3%, as a tick up in the ‘core’ measure added to the upward pressure from higher energy bills.
“However, the increase in the ‘core’ measure was largely due to higher airfares – an erratic component which the Monetary Policy Committee should look through.
“The Bank of England was also already expecting headline inflation to average 2.4% in the fourth quarter of this year when the MPC cut rates earlier this month.
“Nonetheless, today’s news will add to nervousness about the outlook for inflation in the first half of next year, when the main impact of the increases in taxes and other business costs in the Budget will kick in.
“The Bank expects the Budget measures to lift inflation above 2.5%, taking it further away from the MPC’s 2% target. But this increase should only be temporary and may not materialise at all, particularly if the main impact of the Budget is actually to undermine confidence and growth.
“In any event, the current official interest rate of 4.75% is still higher than it needs to be to continue bearing down on inflation, especially when the full effects of past monetary tightening have yet to feed through.
“If anything, the Bank of England should step up the pace of easing. But at the very least the MPC should stick to the current path of ‘gradual’ rate cuts.”
Interest rates may need to be cut much faster than expected, says Bank policymaker
