Feb
2025
Interest rates cut, growth forecast slashed; experts respond
DIY Investor
6 February 2025
The Bank of England has halved its growth forecast for this year as it cut interest rates to the lowest level for more than 18 months.
The economy is now expected to grow by 0.75% in 2025, the Bank said, down from its previous estimate of 1.5%.
The government has made growing the economy one of its key aims. Prime Minister Sir Keir Starmer told the BBC he was “not satisfied with growth” and the downgraded forecast “just spurs us on”.
The new forecast came as the Bank cut interest rates to 4.5% from 4.75%. Its governor, Andrew Bailey, said that rates remain on a downward path.
The property sector – spanning construction, estate agencies, buyers, and sellers – will likely see some positive effects from today’s announcement, though the extent of the impact will depend on broader economic conditions – Andy Jones, Group Director of Corporate Sales, Lettings & BTR at Leaders Romans Group (LRG)
From an investment standpoint, a reduction in borrowing costs may encourage more activity, particularly among those already considering property investment. However, given the current market uncertainties, investors are likely to remain cautious. While lower rates can make borrowing more attractive, concerns around inflation, rental market stability, and future rate movements may temper any immediate surge in transactions.
Some investors may see this as an opportunity to expand portfolios or purchase higher-value properties, but the response will vary depending on location, property type, and long-term confidence in returns. We could also see renewed interest in commercial-to-residential conversions, as investors look for alternative opportunities in the market.
For existing property owners, demand could increase modestly, potentially pushing prices higher in certain segments. Some may choose to refinance at lower rates, freeing up capital for future investments. However, lenders remain cautious, and access to favourable financing terms will still depend on individual borrower profiles and market conditions.
While this rate cut is a step in the right direction, it follows a series of reductions that have yet to significantly revitalise the property market. If rates continue on this trajectory and economic confidence improves, we may see a more sustained rebound in activity heading into 2025. However, investors will be weighing this news against broader challenges, including regulatory changes, rental market pressures, and economic stability.
Alpa Bhakta, CEO of Butterfield Mortgages Limited, said: “With Monetary Policy Committee decisions being the most significant driver of market sentiment, today’s rate cut should precede more activity as borrowing cost becomes lower. That said, challenges remain, and as lenders we must continue to provide flexible solutions and bespoke support to ensure brokers and property investors are well-positioned to thrive as the economic outlook improves.”
Paresh Raja, CEO of Market Financial Solutions, said: “Today’s decision was widely expected, and there’s been plenty of evidence of lenders changing their rates over recent weeks ahead of the base rate being cut. But it is another positive step nonetheless, and it will likely bring more buyers into the market.
“As ever, no sooner has the Bank of England delivered one decision than speculation begins about when it might cut the base rate again. The forecasts still suggest there could be anything between one and three further drops this year, but such predictions are sensitive to other trends, such as the performance of the economy and the rate of inflation. For now, the focus from lenders and brokers has to be on taking a pragmatic, responsive approach, ensuring they support borrowers as best they can, particularly if a wave of new prospective buyers and investors does enter the market.”
Scott Douglas, Senior Director, Head of Debt Advisory at international corporate finance firm Centrus commented: “As the Bank of England convenes its first policy meeting of 2025, there will be no surprise over the widely-anticipating 25bps rate cut.
“The UK economy remains stagnant, with private sector employment declining – factors that strengthen the case for less restrictive monetary policy. November’s GDP growth of just 0.1% has led some analysts to downgrade their 2025 growth forecasts from 1.5% to a modest 1%. This economic slowdown is the primary catalyst for the BoE’s decision to lower rates.
“However, inflation remains stubbornly above the 2% target, with little indication that it will return to target levels by year-end, much to the Government’s frustration. Adding to the uncertainty is the potential escalation of Trump’s trade war, and the possibility of it hitting Britain with a retaliatory response from Starmer could further fuel inflationary pressures, complicating the central bank’s path forward.”
Mike Randall, CEO at Simply Asset Finance, says: “Businesses up and down the country will be breathing a sigh of relief with rates ticking downward. Not only will it give some much needed breathing space for those squeezed by the NI rise; those eager to grow will find borrowing cheaper. Combined with the recent publishing of the Governments’ growth strategy, the outlook for 2025 is looking much more positive.
“But with Trump-led trade wars perhaps tempering the speed of future cuts, the Government cannot afford to take its eye off the ball when it comes to creating an environment that enables domestic growth to flourish.”
Lale Akoner, Global Market Analyst at investment platform eToro, says: “As expected, the BoE cut rates by 25 bps in light of weak growth and labour market dynamics. Their hawkish stance is warranted given rising labour costs, high energy prices, higher taxes weighing on business sentiment and worries of de-anchored inflation expectations – all contributing to sticky inflation above the bank’s target rate. These also point to stagflation concerns which will likely keep the pressure on sterling. We therefore think that rates will stay higher for longer with less cuts than originally planned.”
Dr Bruce Morley an economist with expertise in macroeconomics and finance from the Department of Economics at the University of Bath said:
“As expected, the Bank of England has cut interest rates by 0.25% to 4.5%, although two committee members voted for a 0.5% cut. This was a fine balancing act, as the low economic growth recently suggests interest rates should be cut to stimulate the economy, but on the other hand wage inflation is high and expectations on inflation have risen.
“The inflation rate is expected to exceed 3% later in the year, above its upper band and meaning the Governor needs to write a letter to the Chancellor explaining how they will bring it down.”
Ross Turrell, Commercial Director of CHL Mortgages, said: “The past few years have proven beyond doubt that the base rate set on Threadneedle Street has the greatest influence on the property market, so today’s decision – though widely expected – will be celebrated by the UK property sector.
“We expect this rate cut to act as a catalyst for what is already shaping up to be a buoyant market in 2025. Buyer demand and transaction levels are rising, and any reductions to the cost of borrowing will certainly sustain this momentum. With further rate cuts anticipated this year, it feels as though we are returning to a more stable and, dare I say, ‘normal’ investment landscape.
“With upcoming stamp duty reforms also on the horizon, February and March are set to be particularly busy months as buyers move quickly to complete on purchases before April’s tax changes. It is therefore essential that lenders and brokers prepare for heightened market activity, ensuring their clients are in the best possible position to seize the opportunities this rate cut presents.”
Lily Megson, Policy Director at My Pension Expert said: “This was an eagerly anticipated decision, and a cut to the base rate will no doubt be celebrated as good news. But we’ve been here before, and if last year taught us anything, it’s that fleeting economic shifts cannot overshadow the need for long-term financial planning.
“For many Britons, a lower cost of borrowing is positive, but the flip side is that lower interest rates will mean challenges for savers, especially those nearing retirement. Indeed, we should expect many retirement planners to now question whether their strategy and financial products still serve their interests. However, without reliable support, these questions can be hard for people to answer.
“That’s where the government must step in and do much, much more. We’ve heard plenty of rhetoric about pension reforms designed to both boost the economy and provide better outcomes for savers. But now is the time for decisive action – the government has to turn promises into policy, with a particular focus on improving access to financial education and independent advice. Only then will all retirement planners be able to make informed financial decisions and navigate events like today’s base rate cut with greater confidence.”
Darrell Walker, Director of Sales & Distribution at ModaMortgages, said: “Any decision to cut the base rate will stimulate the market, giving borrowers a shot in the arm. However, while today’s news was expected, the bigger question remains where the base rate will go in the next 12 months, and this, as ever, is far from certain.
“As a lender, we understand that rates will dominate conversations between buyers and brokers, but it is also vital that the service we provide is as painless as possible. Brokers want easy applications, swift decision-making and honest conversations; amidst rate fluctuations and base rate speculation, lenders cannot overlook the importance of delivering a great service, which will enable brokers and their clients to act with speed and confidence.”
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Tim Parkes, CEO of RAW Capital Partners, said: “The market had already priced in a cut, so today’s decision almost felt like a foregone conclusion. As a result, lenders’ rates have fallen throughout January, and there has been a clear uptick in the number of investors and buyers coming to market – this momentum will be maintained by a more relaxed monetary environment.
“For international property investors, the direction of GBP should be of particular interest in the aftermath of the BoE meeting. Rate cuts typically lead to a decline in the value of the Pound, which could present opportunities for relative discounts on UK property for investors holding other currencies. This could lead to an uptick in enquiries from overseas in the coming months, particularly if further rate cuts are made on Threadneedle Street.
“As the market continues to heat up post-cut, speed will be an essential quality for investors and brokers to seek out among lenders. Those that are able to provide decisions within days of an inquiry will rise to the fore and allow investors to take advantage of the opportunities that an improving investment landscape will provide.”
Paul Noble, CEO of Chetwood Bank, said: “Today’s interest rate cut marks a significant milestone for the UK economy – while many expected cuts this year, the timing remained uncertain. For many, this decision will come as a welcome relief, renewing confidence and optimism for the months ahead.
“However, with the economy clearly underperforming and inflationary pressures still at play following the Budget, there remains some uncertainty around how quickly rates will fall from here. Savers should take this as a reminder that the window for securing the best rates in the savings market may be closing.
“Taking a proactive approach now can help ensure that savings continue to deliver strong returns before any further cuts take effect. With further reductions likely later this year, now’s the time for savers to review their options and make sure they’re set on the best possible path.”
Hamish Martin, Partner at LAVA Advisory Partners, said: “The movement of the Bank of England’s base rate typically has an impact on the M&A market, with today’s cut potentially resulting in an uptick in activity. Lower borrowing costs make debt financing more attractive, encouraging both trade buyers and private equity firms to pursue acquisitions that might previously have been out of reach due to higher cost of capital.
“The cut could also have an impact on valuations, as lower rates enhance the present value of future cash flows, making many targets more appealing. However, while this move has the potential to support deal-making, it’s not a fix-all – broader economic conditions, investor confidence, and geopolitical factors will still play a critical role in shaping the market’s momentum over the coming months.”
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