By - The Bank of England has cut interest rates for the second time this year.
- It has set the rate at 4.75%, down 0.25 percentage points from 5%.
- The last time rates were below 5% was last June.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
“Policymakers haven’t rocked the unsteady boat and have opted for an interest rate cut of 0.25%. At a time of deep uncertainty about where inflation will head next, this decision will help provide some reassurance. But the waters ahead look murkier as the implications of Trump heading to the White House for a second term collide with the impact of the UK Budget.
The Bank is expecting the Budget to boost inflation by just under half of a percentage point, due to direct and indirect effects of Rachel Reeves policies.
Fresh nervousness has been sweeping bond markets amid fears that Trump’s policies look set to increase inflationary pressures and swell the US deficit even further, with knock-on effects expected for the UK economy. UK gilt yields were already jittery following the big borrowing plan outlined in the UK Budget.
There are concerns that the increase in employers National Insurance contributions could be passed on in the form of higher prices of goods and services. Now these worries have been exacerbated by US Treasury movements and the knock-on effects of Trump’s policies.
There is also concern that his trade policies could hold back Britain’s economic growth. The fear of a stagflation scenario emerging appears once again to be stalling markets and it’s going to make decisions at the Bank even more tricky in the months ahead. Financial markets are now expecting the Bank to go even slower on rate cuts than they were before Trump’s win, with an implied rate of 4.1% forecast for December next year.”
Commenting on how the BofE rate cut following the Budget’s housing initiatives has brightened the UK property outlook, Daniel Austin, CEO and co-founder at ASK Partners, said: “The Bank of England’s rate cut of 0.25 combined with declining inflation and new fiscal measures, signals a potential shift toward more favourable conditions in the UK property market. House prices have shown consistent month-on-month growth, indicating a possible upward trend into 2025.
“The Autumn Budget’s £5 billion allocation for new homes and a permanent 95% loan-to-value mortgage guarantee scheme aim to boost housing supply and stabilise property values. While this is beneficial for first-time buyers, it may be counterbalanced by lower stamp duty thresholds. Meanwhile, the rental market remains robust, bolstered by incentives like £3 billion in Build-to-Rent housing guarantees, which enhance the appeal for developers. The Affordable Homes Programme also supports SME housebuilders, potentially increasing supply and alleviating market constraints. For property investors, the real estate sector remains a compelling alternative to gilts, with opportunities for growth. Despite the relief from excluding buy-to-let properties from capital gains tax hikes, landlords continue to face higher stamp duty on second homes. This strain on the rental market, driven by limited supply, may temporarily boost the number of properties available for purchase, as mortgage approvals recover to pre-mini-budget levels. Developers focused on co-living and Build-to-Rent projects could benefit from a tighter rental supply—contingent upon favourable planning reforms.
“Private landlords exiting due to rising costs might channel their investments into alternative real estate strategies, such as property debt. These strategies offer attractive tax benefits, with income-based returns exempt from capital gains tax on interest. As CGT liabilities potentially rise, this approach provides continued market exposure with greater financial efficiency, making it increasingly attractive within a shifting regulatory landscape.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “Of all the factors influencing home-buying decisions, economic prospects and direction of travel for interest rates in particular have most impact.
“Today’s reduction will certainly give a kick to those sitting on the fence who are undecided about whether to stick or twist, coming on top of other recent positive housing market data.
“There’s more choice of stock now than a few months ago, so sellers need to remain competitive if wanting to take advantage of inevitable improved buying power as longer-term affordability concerns persist too.
“First-time buyers especially are looking to gain not just properties from investors withdrawing from transactions due to their higher stamp duty liability announced in the Budget but their own obligation to pay more of the tax from next April.”
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