Gilt yields fall as Bank hints at rate cuts

Borrowing costs fell sharply yesterday after a leading Bank of England official suggested interest rates could be cut in the middle of next year.

Amid signs of life in the housing market, the yield on two-year gilts dropped more than 0.1 percentage points to a five-month low of 4.6pc while the ten-year yield was down a similar amount to 4.22pc.

It came after Bank of England chief economist Huw Pill said interest rates could be cut from their 15-year high of 5.25pc by the summer.

Pill said it ‘doesn’t seem totally unreasonable’ to expect the first reduction to happen in August 2024.

It is likely that the central bank will ‘consider or reassess’ its position on rates by then ‘if nothing new has happened’ to change the outlook, he said.

‘But, of course, it is very unlikely that nothing will change over that nine-month period,’ Pill added.

The comments took the markets by surprise, pushing borrowing costs lower.

‘This is the first time a major central bank has started talking about cuts,’ said Mohit Kumar, chief economist at Jefferies.

The Bank of England has held rates at 5.25pc at its past two meetings following 14 consecutive hikes. The chief executive of online estate agent Purplebricks yesterday said the decision to pause the rate hiking cycle has boosted business. Sam Mitchell said: ‘we’ve seen an unexpected boost in october following a quiet September.

‘The Bank of England held its nerve on interest rates, an extremely positive decision for the housing market, which has caused an uptick in demand for the last week of September and through october, and with a second hold this month we expect the trend to continue.

‘After a difficult year, customers and estate agents alike can be optimistic about the state of the sector.’

Housebuilder Persimmon also said it has seen a bounceback in sales activity with a ‘strong pick-up since the start of october’. The developer increased its housebuilding target for the year from 9,000 to 9,500 following the uptick. Meanwhile, Halifax data showed UK house prices rose in october after six months of decline.

House prices ticked up 1.1pc, or £3,000, compared to the previous month taking the average value to £281,974.

The report came as FTSE 250 developer Vistry signed a £813m deal with Leaf Living and Sage Homes, both owned by private equity giant Blackstone, to build more than 2,900 homes as it continued to merge its partnerships and housebuilding units.

London estate agent Foxtons snapped up smaller rival Ludlow Thompson for £10m as part of plans to grow its lettings division.