The Bank of England's (BoE) possible pause on interest rate hikes, suggested by slower-than-expected inflation data, has triggered a surge in U.K. homebuilder and property shares today. The annual headline consumer prices in the U.K. saw an increase of 6.7% in August, a slight decline from 6.8% in July, and less than the forecasted 7% increase, as per the Office for National Statistics.
The market responded to this news with a decrease in yields on the 2-year U.K. government bond by 10.5 basis points to 4.620%. This shift indicates a diminished expectation of the BoE raising interest rates by 25 basis points, with the initial probability of about 80% prior to the data release falling to around 50%.
Analysts from Goldman Sachs have adjusted their expectations based on these indicators and recent dovish commentary. They now predict that the Monetary Policy Committee (MPC) will likely maintain the Bank Rate steady in the near term and revised their forecast for the terminal policy rate downwards to 5.25%, from an earlier prediction of 5.5%.
The prospect of stable borrowing costs led to an uptick in interest rate-sensitive sectors in London. Homebuilders like Persimmon (LON:PSN), Barratt Developments (LON:BDEV), and Taylor Wimpey (LON:TW) saw increases ranging from 4% to 5%. Property groups including British Land and Land Securities also experienced gains.
These combined factors contributed to a 0.9% advance in the FTSE 100 index today. However, this increase was somewhat offset by a decline in energy stocks such as BP (NYSE:BP) and Shell (LON:SHEL), in response to oil prices retreating from 10-month highs.
Investors are also reacting to the significant transformation of Pearson's priorities under its relatively new leadership, which is focused on securing a more tech-oriented future.
In other European markets, Germany's DAX index rose by 0.5%, with automakers attracting investor interest. France's CAC 40 index increased by 0.3% as banks rallied after a slow start to the week, following a less than stellar strategic update from Societe Generale (OTC:SCGLY).
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