A SHOCK jump in inflation sent housebuilding stocks tumbling yesterday as the City braced itself for an early rate hike from the Bank of England.
The CPI rate of inflation leapt to 1.9 per cent in June, from 1.5 per cent previously.
Jeremy Cook, chief economist at currency company World First, said: “This will encourage those economists and rate watchers looking for a tightening of Bank of England monetary policy this year, but for those who are seeing below inflation wage increases, the situation just got a little more painful.”
The plight of the builders was exacerbated by Bank of England governor Mark Carney highlighting concerns over the housing market, as traders concluded that at least some of the stimulus measures which have been shoring up the mortgage market are likely to be removed soon.
Barratt Developments was among the biggest blue-chip fallers, down 8p at 360.3p, while Persimmon was 19p lower at 1,230p. Outside the top flight, Redrow lost 9.2p at 242.3p.
The prospect of an interest rate rise in the coming months, aimed at keeping inflation in check, caused a rally in the pound. Already at near-six year highs, it headed close to $1.72 against the greenback and enjoyed an even sharper rise against the euro.
That hurt companies dependent on overseas earnings. Luxury goods group Burberry was 26p lower at 1,412p, while Wolseley was off 52p at 3,176p as the buildings supply firm trades largely in the US.
The globally-facing FTSE 100 Index was also struggling, closing 35.69 points lower at 6,710.45.
Imperial Tobacco saw shares fall after it announced a debt-financed £4.2 billion US expansion as agencies Fitch and Moody’s downgraded its credit rating. Shares fell nearly 4 per cent, or 101p, to 2,638p.