By In line with expectations, the Bank of England announced on 18th December its decision to cut the base rate to 3.75%.
This decision comes after inflation (CPI) dropped to 3.2% in November (from 3.6% in October), slowly edging towards the Bank’s 2.0% target
The Monetary Policy Committee voted 5-4 in favour of cutting the rate to 3.75.
Why have Interest Rates Been Cut?
Inflation has eased more than expected
UK inflation (CPI) slowed to about 3.2 % in November, lower than what many forecasters and the Bank had expected. Although this is still above the BoE’s 2 % target, the slowdown gave policymakers confidence that price pressures are coming down.
Economic growth is weak
Recent data showed that the UK economy has been flat or weak, with slow growth. In a weak economic environment, lower interest rates can help encourage spending and investment.
Labour market is softening
The ‘unemployment rate has risen to 5.1%, the highest since January 2021’, and the jobs market isn’t as prosperous as it has been in the past – another sign that the economy needs some support through cheaper borrowing.
The Bank wants to support growth while inflation continues falling
With inflation moving down closer to target and wage growth easing, the Bank of England judged that it could start reducing borrowing costs without significantly reigniting inflation pressures.
What does this mean for the UK property market?
Let’s turn to the experts we work with at the National Landlord Investment Show for commentary:
Luct Waters, Managing Director & Founder of Aria Finance, comments:
“While the rate cut is a positive signal for sentiment, the real impact will come through gradually rather than overnight. For borrowers, particularly investors and developers, the focus remains on affordability, rental coverage and lender appetite. We’re already seeing more confidence returning to the market, but careful structuring and early planning are still key.”
Kevin Shaw, National Sales Managing Director, LRG comments:
“The reduction in interest rates is very welcome news – for homeowners, buyers, property professionals, and no doubt Government ministers.
This warming news is set against a chilly backdrop: unemployment has increased to 5.1%, while the November Budget tightened the fiscal screws. Inflation, however, has eased to 3.2% and, thanks to today’s cut, looks likely to continue on that trajectory.
With a reduction in interest rates we expect an increase in activity and therefore transactions. Across LRG brands, applicant numbers are already up 15% year-on-year in December and we’re seeing a significant number of vendors ready to launch in early January.
Two year and five year fixed rate mortgage pricing has already shifted in anticipation and tracker borrowers will also feel the benefit.
In the run up to the November Budget it felt like the market has been driving with the handbrake on, but it was released following the Chancellor’s speech on 26 November. In fact from a property perspective the Budget proved more neutral than the rumour mill was suggesting.
In the meantime, we anticipate a busy start to 2026, which will then gain momentum potentially two further rate cuts to come resulting in greater affordability and less volatile market conditions.”
Gavid Richardson, Managing Director from MFB, comments:
“Markets currently expect at least one to two further rate cuts in 2026, although the pace is expected to slow significantly compared to the quarterly reductions in 2025. We may even see an increase in BBR back to 4.00% before any further cuts if public sector negotiations or strike action result in an increase in pay awards and cause the private sector to react. This may accelerate inflation by circa 0.4%, necessitating a tighter stance from the MPC.
Analysts caution that the rate-cutting cycle may soon come to an end, with steadier rates expected in 2026. If inflation does fall close to the expected 2.5% by late 2026, rates will stabilise, and the need for further BBR reductions will ease.”
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