By Carla Mozee, MarketWatch

LONDON (MarketWatch) -- U.K. stocks fell Friday, with real estate shares under pressure as investors assessed the likelihood of regulatory and monetary policy changes, including the arrival of an interest-rate increase sooner than had been anticipated.

The U.K.'s FTSE 100 index dropped 0.5% to 6,810.73. The move puts the index on track for its first loss in three weeks.

British economic growth "has been much stronger, and unemployment has fallen much faster than either we or anyone else expected," a year ago, Bank of England Governor Mark Carney told business leaders at the annual Mansion House dinner in London late Thursday.

With that, there's been "already great speculation about the exact timing of the first [interest] rate hike, and this decision is becoming more balanced. It could happen sooner than markets currently expect," Carney said.

The benchmark rate now stands at a record low 0.5%.

Also speaking at Mansion House, Britain's finance minister George Osborne said he would give the central bank greater power to curb mortgage lending, in a bid to reduce any risks from the housing market to financial stability.

Housing stocks swam in the red, with residential property firm Persimmon PLC losing 5%, Barratt Developments PLC down 3.9%, and Berkeley Group Holdings PLC fell 4.7%. Real estate investment trust Hammerson PLC gave up 2.2%.

Financials also struggled as Lloyds Banking Group shed 2.2%, HSBC Holdings PLC (HSBC) fell 0.8%

Markets had been pricing in a rate hike in around the second quarter of 2015, but two-year swap rates have risen more than 15 basis points on Thursday's level, said Berenberg in a note Friday.

Meanwhile, the pound (GBPUSD) jumped in anticipation of a rate hike, buying $1.6972 compared with $1.6906 late Thursday. Sterling on Wednesday had fetched about $1.6791.

British stocks also fell alongside other European equity markets as an escalation of violence in Iraq sent energy prices soaring.

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