UK builders hit by rising borrowing costs – investors reduce bets on Bank of England interest rate cuts

Shares in British housebuilders fell yesterday as investors reduced their bets on the Bank of England’s interest rate cuts in the wake of the Budget.

On a day of turmoil in financial markets amid concerns over Rachel Reeves’ borrowing plans, blue-chip developer Persimmon fell 7.5 per cent, while Bellway lost 7 per cent and Taylor Wimpey lost 6 per cent. .7 percent.

The sell-off came as analysts warned that interest rates would not fall as much or as fast as expected ahead of the Budget.

Investors are now betting on one more rate cut this year, expected next week.

The excess borrowing announced by the Chancellor in the Budget is expected to put upward pressure on inflation, preventing the Bank from cutting rates too quickly.

His plans have caused a stir in bond markets, with analysts warning that the sharp rise in bond yields will translate into higher mortgage costs.

Laith Khalaf, head of investment analysis at AJ Bell, said: “Based on what has happened with two-year bonds, we could start to see mortgages rise again, just when borrowers thought we were firmly on a path falling”.

Investment bank Goldman Sachs said that after cutting rates next week, it expected the Bank of England to leave them unchanged next month, dealing a blow to millions of borrowers.

Before Rachel Reeves presented her budget, markets were expecting two cuts this year.

But traders now see less than a one-in-three chance of a second reduction in December.