UK: Bank of England The cost of borrowing has been reduced, with the base rate dropping from 4.5 to 4.25 percent. This was due to concerns over global economic uncertainty and in particular, US trade tariffs.
The Bank’s monetary committee (MPC), which has been in charge of determining interest rates since August last year, made this widely anticipated decision. MPC warned that the UK’s economy will continue to slow down by 0.3 percent over the next 2 years. This is on top of their significant downward revisions in forecasts made earlier this year.
The reduction in the interest rate to 4.25 percent is expected have a significant effect on the UK’s real estate markets. It will likely encourage more activity in both the commercial and residential sectors.
However, experts caution that wider economic risks – including inflation, geopolitical instability, and subdued, GDP growth (one per cent forecast for 2025) – could temper the benefits of rate cuts and requires continued strategic oversight.
Kate Nicholls, Chief executive officer UKHospitality“This interest rate cut is good for hospitality businesses,” he said. 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.
The government is focused on driving economic growth and the markets expect further interest rate cuts this year. The Bank of England must meet these expectations. It is important that the Bank of England meets these expectations.
Barret Kupelian of PwC UK’s chief economist said that the 25-basis point cut by MPC “was neither dramatic nor bold.” The MPC’s 25-basis-point cut was neither dramatic nor daring.
First, as a UK response to tariffs appears unlikely, an increase in global trade uncertainties keeps businesses and households cautious and measured, but reduces the risks of tariff-led inflation. As a net importer, the UK’s imports are relatively cheaper due to Sterling’s recent rally. Sterling has gained around 7 per cent in value since January. Brent crude, which is currently trading at $60 per barrel as opposed to the Bank of England’s February conditional assumption of $74, has also fallen.
“Cutting the rates in a foggy situation is like trimming your sails when there’s a storm. The only way to keep a ship moving is by cutting rates, but this won’t ensure clear skies. “It’s a first step that is welcome in a world that has proven to be uncertain.”
Jonathan Sparks is the Chief Investment Officer for UK. HSBC Global private banking and wealth said: “A series of weaker economic statistics has led to a general consensus to cut economic growth forecasts. The BoE echoed the trend by reducing its GDP growth projections for 2026 to 1.25 percent. The good news is the falling energy prices and the strengthening GBP has pushed the inflation forecasts down, giving the BoE room to be more dovish during the second half of the year.
We will continue to monitor the data and be on the lookout for any signs that indicate an improvement. Real inflation-adjusted gilt yields are just below two percent around the maturities of five to ten years. This is a fantastic opportunity to lock in rates of return which were previously unattainable. If, as expected, the base rate drops to 3% in Q3 of 2026, there will be room for capital gains. The GBP’s strength is largely a result of the USD’s weakness.”
Highlights:
• The Bank of England has cut interest rates to 4.25 per cent amid global economic concerns, including US tariffs and slowing trade.
• UK growth forecast has been downgraded, with only one per cent GDP growth expected in 2025 and 1.25 per cent in 2026.
• The real estate and hospitality sectors will benefit from lower borrowing costs, aiding recovery efforts.
• Economists cite lower energy prices and a strong GBP as easing inflation pressures, supporting further rate cuts.
