(Reuters) - Shares of British housebuilders fell sharply on Wednesday after May inflation data defied slowdown expectations, with analysts predicting a "dangerous period" for the housing market due to elevated mortgage rates.
Britain's consumer price inflation held at 8.7% in May, official figures showed, a day before the Bank of England (BoE) is forecast to raise interest rates for the 13th time in a row.
This has stymied hopes of a strong recovery in the UK housing sector, after a smaller-than-expected decline in the inflation rate in April and a surprise jump in wage growth had forced some lenders to rein in or reprice mortgage offerings.
FTSE 100 firms Barratt, Persimmon (LON:PSN) and Taylor Wimpey (LON:TW) were all down over 2.3% each in the morning trade, dragging the UK housebuilders' index down 3% by 0830 GMT.
An annual profit increase failed to lift high-end homebuilder Berkeley, another FTSE 100 player, with shares falling 3.3% to 3,783 pence.
Vistry Group (LON:VTYV), Crest Nicholson (LON:CRST), Redrow (LON:RDW) and Bellway (LON:BWY) lost over 1.7%.
"Higher core inflation is likely to reinforce the market's conviction that rates will need to go significantly higher, and could power even higher rate expectations further down the line," said Sarah Coles, head of personal finance at Hargreaves Lansdown (LON:HRGV).
This would bring more "mortgage misery" for anyone looking for a new deal or facing a remortgage, Coles added.
In a further blow to the sector, British finance minister Jeremy Hunt on Tuesday said the government would not provide any significant financial help to homeowners hit by rising mortgage costs, as that would put further upward pressure on inflation.
Hunt is expected to meet with major lenders later this week to discuss the challenges faced by some borrowers.
"Higher mortgage rates are set to squeeze demand for property though and after the short episode post the mini-budget last year, we're now entering a very dangerous period for the housing market," said eToro analyst Adam Vettese.
(This story has been corrected to say 'due to,' not 'underpinned by,' in paragraph 1)