UK House Builders Knocked as Mark Carney Suggests Interest Rates Hike 'Sooner than Expected'

Housebuilders' shares dropped after Bank of England Governor Mark Carney suggested an interest rate hike may come sooner than expected.

In early London trading following Carney's comments, construction firms were counting the cost.

Barratt Developments shares had fallen by over 3%, Taylor Wimpey's share price had shed 2.5% and Persimmon was down by more than 2%.

A revival in mortgage demand thanks to the central bank's record-low 0.5% base rate, which has pushed down credit costs, is helping to drive up house prices.

Construction firms have increased their residential housing work to chase profits off the back of higher prices.

But the UK economy is recovering and set to grow by as much as 3% in 2014. As a result, the central bank is looking to start raising interest rates before any credit bubbles appear, which will put the brakes on mortgage lending.

"There's already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced. It could happen sooner than markets currently expect," Carney said in his speech at the annual Mansion House dinner in the City of London.

Analysts have been predicting a rate rise at some point in 2015 in the first change to the base rate since 2009.

"To be clear, the MPC has no pre-set course. The ultimate decision will be data-driven," Carney said.

"At this point it is safest to conclude, as the monetary policy committee has, that there remains scope for spare capacity to be used up before policy is tightened and that a host of labour market, capacity utilisation and pricing indicators should be watched closely to determine how that slack is evolving."

The central bank has consistently said it will not raise rates until a number of pre-conditions have been met, including an end in the real-terms fall in wages, a rebalancing of the economy away from household consumption and towards business investment and trade, and a healthier labour market.