Sterling soars, housebuilders tumble and borrowers ask about fixed-rates - the fallout from Carney’s Mansion House speech
Government bond yields soared, construction stocks tumbled and interest rate futures priced in a first hike by December after Mr Carney said rates could rise sooner than financial markets had thought - his most hawkish signal to date.
“There’s already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced,” Carney said in a speech late on Thursday. “It could happen sooner than markets currently expect.”
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Hide AdRob Wood, chief UK economist at German bank Berenberg, said Mr Carney’s shift reflected the economy’s buoyancy.
“It is flying now. Employment is rising at a record pace and we see no sign of economic growth slowing from its current approaching 4 percent annualised pace,” he said.
Shares in the country’s biggest housebuilders including Barratt Developments and York-based Persimmon, fell more than 4 per cent, while Bovis Homes, Taylor Wimpey, Bellway and Berkeley were down between 3 and 4 percent.
Land Securities and British Land, the country’s two largest listed property developers, were also hit, with shares in both groups down over 3 per cent.
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Hide AdFirst Direct, the Leeds-based lender, reported a “flurry of calls” on Friday morning from borrowers asking about fixed-rate loans.
Mr Carney said that more important than the timing of a first rate rise was that future increases be “gradual and limited”, in part due to high household indebtedness and a drag on growth from a stronger currency.
The record current account deficit was not an immediate cause for alarm, he added, but it was only sustainable to borrow from abroad to fund investment, not consumption.