The rotation to heavily sold UK-focused stocks came as the end of the Bank of England’s rate hiking cycle moved firmly into view on the back of today’s 6.7% inflation reading.
One final 0.25% rate rise is still expected by the Bank tomorrow, but a potential peak of 5.5% represents a big improvement on forecasts of above 6% earlier this summer.
The developments enabled investors to take a more relaxed view of the housebuilding sector after a miserable run that dates back beyond last September’s mini-budget turmoil.
Persimmon (LSE:PSN), which recently fell out of the FTSE 100 after its shares dipped below £10 for the first time in a decade, jumped 48.5p to 1,095p as Taylor Wimpey (LSE:TW.) and Barratt Developments (LSE:BDEV) rose 6.35p to 121.65p and 20.3p to 464.7p in the top flight.
Investors are betting that an easing in fixed-rate mortgage costs will limit downward pressure on house prices, meaning less chance of the worst-case scenario of land value write-downs.
Today’s bargain-hunting came with dividend appeal as Taylor Wimpey and Barratt offer yields of 8%, while second-tier players Redrow (LSE:RDW), Bellway (LSE:BWY) and Vistry Group (LSE:VTY) sit at 6% or above.
It’s a similar yield story for Land Securities Group (LSE:LAND), which joined warehouse and logistics business Segro (LSE:SGRO) in rising sharply on hopes of a cyclical upturn in the real estate sector.
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Higher interest rates have damaged the appeal of property as an investment class, with one of the hardest hit being Paddington Central owner British Land after its relegation from the FTSE 100. The shares today rebounded 15.9p to 325p, still way off the 471p seen in February.
Respite from rising debt costs also fuelled interest in utility stocks as Severn Trent (LSE:SVT) lifted 43p to 2,474p and United Utilities Group Class A (LSE:UU.) rose by 16.4p to the best level since late July at 993p.
Lloyds Banking Group and NatWest Group (LSE:NWG) were among other notable risers in a session when global player HSBC Holdings (LSE:HSBA) was among the 10% of the FTSE 350 to reach lunchtime in the red.
Shares in Lloyds rallied 1.6p for their highest level since early August at 44.5p and NatWest added 8.3p to 240.4p on hopes that a peak for UK interest rates can help the lenders avoid a damaging spiral in bad debt costs.
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Another widely held stock on the recovery trail was BT Group as the rates outlook prompted investors to revisit the costs associated with refinancing £4.5 billion of debt due in the next 24-36 months. The shares added 4p, topping 120p for the first time in almost two months.
Across the London market, the FTSE 100 index performed ahead of European peers by adding 62 points to sit near the levels last seen in May at above 7,700. The rise of 0.8% compared with earlier expectations for a flat session due to uncertainty caused by the release of tonight’s Federal Reserve rates decision and updated economic projections.
The UK-focused FTSE 250 index rallied 248.59 points to 18,675.29, with top performers including the publisher Future (LSE:FUTR) as investors revisited various growth plays. Transport companies FirstGroup (LSE:FGP) and National Express owner Mobico Group (LSE:MCG) also lifted 5.7p to 160.1p and 2.8p to 86.3p respectively.
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