Housebuilder shares spike as Bank of England improves economic outlook

Housebuilder shares spiked yesterday on the back of a more positive assessment of the state of the economy from the Bank of England after it increased the interest base rate half a percentage point to 4%.

Persimmon’s shares rocketed nearly eight per cent by close of trading, with other listed builders rising by between four and six per cent. The shares of listed housebuilders rose modestly yesterday morning before spiking just after 12pm, when the Bank of England made the announcement. 

By close of trading, Taylor Wimpey’s shares were up over 5.5%, Bellway’s by nearly four per cent and Berkley Group’s over 4.5%. 

It comes as the bank came forward with a markedly more positive outlook for the economy than being advanced before Christmas, predicting that inflation had probably peaked in the UK, as in other advanced economies, and that the forthcoming recession would be shallower than previously expected. Although, it noted inflation remained high. 

The inflation rate was 9.2% in the 12 months to December 2022, down from 9.3% in November. 

The bank’s monetary policy summary said yesterday: “Wholesale gas prices have fallen recently and global supply chain disruption appears to have eased amid a slowing in global demand. Many central banks have continued to tighten monetary policy, although market pricing indicates reductions in policy rates further ahead.”

It believed the recession was likely to be shorter and shallower than it originally anticipated. “Annual CPI inflation was expected to fall to around 4% towards the end of this year, alongside a much shallower projected decline in output than in the November report forecast,” the bank said. 

The Bank was split in its decision over whether to raise rates now, leading to some speculation yesterday that interest rates may have peaked at the current level, though most market commentators expect they will rise to 4.5% by mid-2023 before falling back. 

Jonathan Moyes, head of investment research at the Wealth Club, said: “We can understand why two committee members were calling for the Bank to pause. Previous rate rises are already having an impact on the real economy, most notably through lower mortgage approvals, and inflation looks to have turned a corner and is expected to fall sharply to just 1% by 2025.

“This was a much more optimistic tone from the Bank. Interest rate rises are expected to peak by mid-2023 at 4.5% before easing back, inflation (CPI) is expected to fall to just 1.0% in 2025, and GDP growth has been upgraded significantly from its November forecast.”

Housebuilder’s share prices plummeted after the mini-budget last year, falling 5% to 6% over the weekend after then chancellor Kwasi Kwarteng made the statement.