Bank of England Interest Rates: Housebuilders Shares Improve

With the Bank of England recently announcing that the UK’s recession will be shallower than previously expected, housebuilder shares rose dramatically in reaction to the welcomed news.

Persimmon’s share price was particularly noticeable, with the share price rising nearly 8% in one day in early February 2023. The positive assessment from the Bank of England meant that the interest base rate changed by half a percentage point to 4%, lower than previously expected.

Other housebuilders’ shares also increased, with other listed builders rising up to 6% by the end of trading. For example, by close of trading, Taylor Wimpey’s shares were up over 5.5%, Bellway’s by nearly four per cent and Berkley Group’s by over 4.5%.

Shares continued to grow before peaking just after midday when the Bank of England made the announcement. The change in outlook for the housing sector comes as the bank came forward with a markedly more positive outlook for the economy and predicted that inflation had probably peaked in the UK.

Similar projections have been seen globally, suggesting any forthcoming recessions will be shallower than expected, despite inflation remaining critically high.

The inflation rate was 9.2% in the 12 months to December 2022, down from 9.3% in November. Within the policy summary released after the announcement, it was stated: “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.”

Bank of England

Speculation has arisen around whether or not interest rates have peaked, as the first split decisions over whether to raise rates now occurred. However, other commentators have expected interest rates to rise over 4.5% by mid-2023 before starting to fall by 2024.

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.”

While interest rates and inflation remains critically high, there is a glimmer of hope that the housing sector is through the worst of the spike, despite concerns still dominating the sphere.