The Bank of England has reduced interest rates to 4.5%, marking its third cut in under a year.
This decision follows a previous reduction in November 2024, with the rate remaining unchanged in December. While most of the Bank’s nine policymakers supported the move to 4.5%, a minority favoured a more aggressive cut to 4.25%, highlighting the ongoing uncertainty surrounding the UK economy.
The Bank of England has revised its economic growth forecast for 2025, now predicting a 0.75% expansion, down from an earlier estimate of 1.5%. The impact of this rate cut will be felt across the financial landscape, potentially easing borrowing costs for mortgages and loans while simultaneously reducing returns for savers.
The decision is widely seen as a positive step for the British housing market. Lower borrowing costs could improve affordability, providing a confidence boost for homebuyers and those looking to remortgage. The number UK home sales in January 2025 was just under 20% more than January 2024. That, alongside increased buyer registrations at the start of the year. However, while sentiment may improve, the immediate effect on mortgage rates is expected to be gradual, as lenders respond cautiously to the new environment.
The timing of the rate cut is also significant, as the April’s stamp duty threshold changes approach. The market has already seen a surge in activity from buyers looking to complete purchases before the new rates take effect. The combination of lower interest rates and impending tax changes may accelerate decision making among those on the fence about moving.
Looking ahead, the trajectory of further interest rate reductions will depend on broader economic stability. Inflation, although lower than last year, remains a key factor influencing future interest rate policy. While there is optimism that additional cuts could follow in 2025, economic volatility means nothing is guaranteed.
For now, the latest rate cut is expected to provide a boost to property market confidence.
The property sector, already showing signs of resilience, could benefit from improved affordability, though sustained growth will depend on wider economic conditions and how quickly lenders adjust mortgage rates in response.
We will publish more details next week on what this will mean for the property market.