Housing stocks drag on FTSE as inflation woes build into Bank of England interest rates call
Fears about the impact of interest rates on the UK’s struggling economy echoed around the City into this week’s set-piece interest rate meeting at the Bank of England.
A trio of Tuesday trading updates from London-listed firms with direct exposure to the housing market revealed rising costs.
The insight reverberated across an industry which depends on affordable mortgages just as the Bank, is looking toward rate hikes to confront rising inflation.
Drops for their share prices looked built in for the day during closing trade on the stock market.
Taylor Wimpey, one of the UK’s largest residential developers, lined up alongside two of the country’s best-known builders’ merchants, Travis Perkins and Howden Joinery in an outlook for rising costs that will add to the gloom in Threadneedle Street ahead of Thursday’s rate call.
Taylor typically builds over 10,000 homes a year. It said it was braced for rising costs amid the Middle East conflict as it revealed a six per cent year-on-year fall in its order book to 7,689 homes, with the value of the deals concerned down five per cent to £2.2m.
“Cost pressure and surcharges [are] starting to come through from our supply chain,” the FTSE 250 firm said.
Chief executive Jennie Daly added: “Our teams continue to work extremely hard to support customers through their homebuying journeys against ongoing affordability challenges and an increasingly uncertain macro backdrop.”
Its shares fell five per cent in late Tuesday trade to 79p, taking their tumble over the past year to around a fifth.
Share price declines have struck the wider industry, which is caught in a slowdown casting doubt on the government’s plans to complete 1.5m new homes during its term of office.
At Travis Perkins, the building slowdown pushed group revenue down by 1.7 per cent on a like-for-like basis in the first quarter.
The nationwide chain of over 550 builders’ merchants called trading conditions “challenging”.
It pointed to “progress in passing through manufacturer price increases”, in a pattern destined to add to inflationary pressure for consumers, which Bank policymakers are scrutinising when they gather in Threadneedle Street.
Travis is also on the FTSE 250. Its stock also fell by almost 6 per cent in late Tuesday trade, to 514p.
Howden, the country’s biggest supplier of kitchen joinery, said it “successfully implemented price increases across all geographies at the start of the year”.
It said its “near-sourced” supply chain was “robust” and stood by its existing profit guidance.
Shares in the FTSE 100 constituent were caught in the wider flight from housing stocks, down 3% at 792p.
Dan Coatsworth, head of markets at AJ Bell, said: “The effects of a stagnant housing market and a lacklustre economy are starting to be felt along the supply chain.
“A prolonged Middle East conflict keeping oil prices higher for longer could further weigh on consumer and business sentiment, leading to a drop in retail and construction activity. Any increase in interest rates would be bad for the property market”
Bank Governor Andrew Bailey will chair a nine-member Monetary Policy Committee now expected to discuss rate hikes, with consumer price inflation at 3.3%, already significantly ahead of the official 2% target.
The Bank is expected to plump for what City analysts have called a “hawkish hold” this week, keeping rates at 3.75%.
The nine-member MPC voted by five to four to keep rates steady at the last meeting, with the dissenters then calling for a cut.
Attention will focus on how many policymakers have changed their outlook for the next move.
Suren Thiru, chief economist at Institute of Chartered Accountants in England and Wales said: “Stagflation fears will cast a long shadow over this policy meeting with elevated concerns over inflation possibly pushing at least one of the more hawkish rate-setters to break ranks and vote to raise rates.
“Setting policy is likely to become more hazardous for committee members, especially given rising global headwinds.”
The international oil price, Brent crude, was back over $100 on Tuesday.
Morning Wire‘s Shadow MPC voted by eight to one to hold rates. Our City economists and academics cited higher energy costs, with one member, Ruth Gregory, calling the decision “the stuff of nightmares”.