Housebuilder shares leap as interest rates stay at record lows

Shares in listed housebuilders leapt by up to 5% yesterday as the market reacted to the unexpected decision by the Bank of England not to keep interest rates at their current historic low.

The Bank of England monetary policy committee voted by 7-2 in fgavour of keeping the base rate at 0.1%, despite the governor of Bank, Andrew Bailey, having warned in October that rates might rise to counter growing inflation concerns.

Shares in the UK’s largest housebuilder, Barratt, rose by as much as 4% in the immediate aftermath of the decision from yesterday’s low point, eventually closing the day 2.3% up.

Persimmon, likewise, jumped as much as 5.2% from its low point yesterday, eventually closing the day 2.1% up on the day before.

Taylor Wimpey, Bellway, Berkeley and Redrow all rose by similar amounts. Low interest rates are seen as a fundamental component of the current high demand for housing, making homes affordable to buyers despite record prices.

Sterling also fell sharply yesterday following the Bank of England committee, which appeared to take the market by surprise.

Chris Beauchamp, chief market analyst at IG Group, said the Bank had “been caught saying one thing and doing another”.

He said: “This will be welcome news for homeowners, but markets will wonder if the Bank of England has the necessary steel in the months to come to contemplate the needed rise in interest rates.”