In a move that had been largely predicted by analysts and financial experts, the Bank of England has cut interest rates for the second time this year. The Bank’s monetary policy committee voted by a majority of eight to one to reduce rates and ease the pressure from high borrowing costs, setting the new rate at 4.75%, down 0.25% points from 5%.
That said, the Bank has since warned that inflation is likely to increase as a result of the autumn Budget, higher taxes, and increased borrowing, which will all likely add about 0.5% points to headline inflation by the middle of next year.
Inflation, which measures the pace of price rises, fell below the Bank’s 2% target in the year to September, but was always expected to rise again after gas and electricity prices rose last month. It was then forecast to drop back to 2% by 2026, but the Bank now expects that to happen in the following year 2027.
The UK property market responds to the interest rate cut
Interest rate cuts typically positively influence the UK property market, leading to increased buyer confidence with lower interest rates which can lead to a surge in buyer activity, higher property prices, and improved return on investment for investors.
Following the news of the decision to cut rates the pound rose against the US dollar, while financial markets reacted by betting that Threadneedle Street would cut interest rates fewer times and at a slower pace over the coming year. Chancellor Rachel Reeves quickly welcomed the decision by the Bank, but said she is ‘under no illusion about the scale of the challenge facing households’.
The latest cut has joined a number of favourable conditions for the property market in recent months, with increased supply, heightened buyer and seller activity, and a renewed confidence following the pandemic era.
Will the rate be cut further?
The Bank of England’s governor, Andrew Bailey, has indicated that borrowing costs are still likely to come down in future, but he cautioned anyone with expectations that it will happen soon.
‘We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much. But if the economy evolves as we expect it’s likely that interest rates will continue to fall gradually from here,’ he said.
With market speculation that Donald Trump’s US election victory will also lead the way for renewed inflationary pressures globally, Bailey believes a ‘gradual approach’ to cutting borrowing costs is required as the Bank waits to see if Trump will impose import tariffs on America’s trading partners.
Lower interest rates offer exciting opportunities for the UK property market, whether you’re a first time buyer or a seasoned property investor. This cut also comes at an exciting time, as many potential buyers are aiming to complete purchases before the possibility of future stamp duty changes, as hinted in the autumn budget. Consulting with an industry professional is vital to ensure you move in the right direction for your personal, financial and property goals, whether it be renting, buying or selling property in the UK market.
Contact Tailor My Property today and connect with our expert network of financial and property professionals.
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