Real Estate Stocks Jump Even As BoE Urges Caution On Rate Cuts

UK real estate stocks soared on Thursday on the prospect that interest rates might be cut in 2024, even as the Bank of England warned rates might have to stay higher for longer to combat inflation.

The FTSE 350 Real Estate Index of UK property stocks rose as much as 7% in early trading amid general financial market excitement that base rates could be cut by as much as 1.25 percentage points from the current level of 5.25% in 2024. 

The trading came on the back of data from the Federal Reserve the day before indicating that the Federal Open Market Committee has finished raising rates and may cut rates by up to 75 basis points next year. 

The Bank of England Monetary Policy Committee held rates at 5.25% in December, with the decision announced at midday Thursday.

In minutes and interviews accompanying the decision, Andrew Bailey, the Bank's governor, was far more cautious on the prospect of rate decreases. Bailey indicated that rates could be raised again if inflation remains above its 2% target, adding it was “far too early” to start talking about cuts. 

That took some of the steam out of the rise in property stocks, but not much. The FTSE 350 Real Estate Index still finished the day 4.75% higher, and bond markets were still pricing in rate cuts of 1 percentage point next year. 

Great Portland Estates was the biggest riser in the index, jumping 8.5%, while the firm with the smallest gain, Grainger, still rose 3.2%. 

UK real estate values and transaction volumes have plummeted since the Bank started raising rates in mid-2022. As a result, the expectation is that falling rates will cause values and volumes to rise.