Hawkish BOE comments halt top flight

Market report Scott Reid

The prospect of earlier and larger rate rises brought the market rebound to a halt yesterday, with the FTSE 100 index of Britain’s biggest blue-chips shedding 108.73 points to 7,170.69.

Bank of England governor Mark Carney warned that interest rates would need to rise sooner and by more than expected at the time of the central bank’s last forecasts in November to get inflation back to target.

It leaves the door open to a potential rate hike as soon as May, with markets also now pencilling in more than three hikes within three years.

The inflation report sent the pound surging more than 1 per cent against the dollar and euro on the Bank’s rate hike hints.

David Madden, market analyst at CMC Markets UK, said: “The jump in sterling on the back of the Bank of England update, whereby the governor, Mark Carney, stated rates could move higher than anticipated is holding down the British market.

“A firmer pound has a track record of weighing on the FTSE 100, and we are seeing history repeating itself. Traders are now pricing in a 100 per cent probability of an interest rate rise from the BOE in August, and the UK home builders like Berkeley and Persimmon are feeling the pinch.”

In stocks, housebuilder Bellway said it was lining up a double-digit rise in housing revenues thanks to higher selling prices and robust demand for new homes.

The FTSE 250 firm expects half-year housing revenues to jump 14 per cent to £1.3 billion, as customer appetite “remained strong”. Rate hike fears left shares off 6.1 per cent at 3,110p. The catering giant said it now expects to be above the middle of its target 4 per cent to 6 per cent organic growth range for the full year. Shares tanked after the telecoms group warned over profits while unveiling plans to roll out full fibre broadband to three million properties.