The FTSE 100 was trading 0.4% lower at 6,817 early on.

During the Mansion House speeches on Thursday evening, Bank of England (BoE) Governor Mark Carney warned that the first hike in interest rates may come sooner than markets expect, saying that the central bank could tighten policy in as soon as six months.

Rob Wood, Chief UK Economist at Berenberg, said that Carney delivered a “significant” but “sensible” change in tone on interest rates. He now expects the first hike to come in November 2014, compared with analysts’ previous expectation of an rate increase in the second quarter of 2015.

Meanwhile, Chancellor George Osborne moved to quell fears of rampant house-price inflation by giving the BoE powers to cap risky mortgage lending. He also announced a £5m fund to promote the development of brownfield sites.

Concerns over a spike in oil prices due to the recent flare-up of tensions in Iraq were also weighing on sentiment this morning. Brent crude jumped to a three-month high yesterday while West Texas futures soared to a nine-month high after Islamist militants seized control of major towns and cities and threatened to move on Baghdad.

“This has the potential to seriously disrupt the supply of oil from, what is, a major oil producing country, and therefore it is hardly surprising that we’ve seen such a significant reaction in the markets,” said Craig Erlam, Market Analyst at Alpari UK.

Housing, real estate stocks slip

Housebuilders Barratt Developments, Persimmon, Bovis Homes and Bellway were all trading with heavy losses this morning as investors reacted to the prospect of higher interest rates and a potential cooling of the UK housing market.

Property firms such as Land Securities and British Land were also out of favour.

Oil and gas stocks were tracking the recent surge in crude prices this morning with Tullow, Shell, BG Group and BP putting in decent gains.

Tullow announced today that it has increased the size of its loan facility for exploration in Norway, which now provides pre-funding for around 75% of investment in the region.

FTSE 250-listed miner Petra Diamonds surged after recovering an “exceptional” 122.52-carat blue diamond at its Cullinan mine in South Africa. “The rarity of a blue diamond of this magnitude sets it apart as a truly significant find,” the company said in a statement.

FTSE 100 – Risers
SSE (SSE) 1,578.00p +1.22%
Fresnillo (FRES) 807.50p +1.19%
Tullow Oil (TLW) 851.50p +1.13%
BP (BP.) 513.10p +0.94%
BG Group (BG.) 1,276.00p +0.87%
Severn Trent (SVT) 1,987.00p +0.71%
Royal Dutch Shell ‘B’ (RDSB) 2,500.50p +0.68%
Royal Bank of Scotland Group (RBS) 342.60p +0.68%
Royal Dutch Shell ‘A’ (RDSA) 2,388.00p +0.65%
United Utilities Group (UU.) 892.00p +0.62%

FTSE 100 – Fallers
easyJet (EZJ) 1,449.00p -3.46%
Barratt Developments (BDEV) 357.70p -3.22%
International Consolidated Airlines Group SA (CDI) (IAG) 378.70p -3.20%
Persimmon (PSN) 1,264.00p -2.92%
Land Securities Group (LAND) 1,044.00p -2.88%
British Land Co (BLND) 697.00p -2.79%
Ashtead Group (AHT) 899.50p -2.02%
Shire Plc (SHP) 3,499.00p -1.85%
Hammerson (HMSO) 587.50p -1.76%
Kingfisher (KGF) 378.00p -1.61%

Source: ShareCast