UK: The Bank of England has voted to cut the cost of borrowing, reducing the base interest rate from 4.5 per cent to 4.25 per cent, a decision that stems from concerns about global economic uncertainties, particularly US trade tariffs.
The Bank’s monetary policy committee (MPC) made the widely anticipated decision, marking its fourth rate cut since last August. However, they also issued a cautionary note, predicting a 0.3 per cent further slowdown in the UK economy over the next two years, on top of significant reductions to their forecasts earlier this year.
This rate cut is anticipated to have a significant impact on the UK’s real estate market and will likely encourage more activity in both the residential and commercial sectors.
The interest rate cut to 4.25 per cent is set to ease borrowing costs for investors and developers. For investors, cheaper mortgages improve cash flow and affordability, encouraging portfolio expansion and capital appreciation, while developers benefit from more viable financing for new projects in high-demand areas.
However, experts caution that wider economic risks—including inflation, geopolitical instability, and subdued GDP growth (1 per cent forecast for 2025)—could temper the benefits of rate cuts and require continued strategic oversight.
For both investors and developers, lower interest rates present a window of opportunity, but one that will be heavily impacted by the broader economic context. Still, industry leaders say the move sends a positive signal.
Jonathan Handford, managing director at national estate agent group Fine & Country, said: “The UK economy has been handed a cautious boost, as the Bank of England takes action to steady growth and ease pressure on households and businesses. With inflation cooling and global uncertainty mounting, the move signals a shift towards supporting recovery.
“For homeowners and buyers, this is welcome news. Mortgage rates had already started to come down in anticipation, and today’s decision could lead to even better deals, especially on fixed-rate products. That’s good news for first-time buyers and anyone looking to move, at a time when affordability is still a major hurdle.
“The cut also comes during what’s usually a busy time for the housing market. With spring activity already picking up, lower borrowing costs could give the market an extra push, helping more people take the leap. While the Bank hasn’t ruled out further cuts later this year, it’s treading carefully. For now, though, today’s move offers some relief and a glimmer of encouragement for buyers and homeowners alike.”
Peter Stimson, head of product at the mortgage lender MPowered, said: “No surprise on the decision, but no slam dunk either. The UK’s darkening economic outlook and the very real threat of a global recession have led the mortgage markets to price in a steady ratcheting down of the Base Rate this year. But the Bank’s tinge of caution today hints that the next cut may not come as soon as thought, and raises the question that the mortgage market might have got somewhat ahead of itself.
“In recent weeks the swaps market has been suggesting that the next Base Rate cut could come as soon as June, but that is suddenly looking less likely. As swap rates digest today’s decision and the Bank’s accompanying minutes, mortgage lenders might just press pause on their plans to announce more interest rates in coming weeks.”
For hospitality businesses, this cute in interest rates could provide some relief for those paying back Covid loans. Kate Nicholls, chief executive of UKHospitality, said: “This cut to interest rates is positive for hospitality businesses. Many venues are still paying back Covid loans and have been suffering under high interest rates, as well as continuing to grapple with the £3.4 billion in additional annual cost that was placed upon them last month.
“Driving economic growth is rightly the Government’s focus and it’s clear that the markets are anticipating further cuts to interest rates this year. It’s important the Bank of England meets those expectations. This will be absolutely vital for hospitality businesses to fulfil their ability to support our communities, create local jobs and drive socially productive growth,” she added.
Highlights:
- Bank of England cuts rates to 4.25 per cent, its fourth rate cut since August 2024
- Lower borrowing costs are expected to stimulate residential and commercial property markets
- Experts warn of global instability and low UK growth forecast (1 per cent for 2025)
- Experts call the rate cut a positive move, but caution that future cuts may be slower
- Lower rates offer support for hospitality businesses repaying COVID loans
