15 Apr 2025

Is the UK Expected to See Interest Rate Cuts?

Category: Property Investment

Interest rate cuts are expected in the UK throughout 2025, though exactly how much and how fast still depends on factors like inflation and global politics. For borrowers and investors, this could be good news, potentially lowering mortgage costs and boosting investment returns. But with so many changing factors, it’s more important than ever to stay informed and ready to adapt as the financial landscape continues to shift.

Author: Sophie Hope

Digital Marketing Executive

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Outlook for UK Interest
Rate Cuts in 2025 and Beyond

Financial markets are currently predicting up to three additional interest rate cuts by the end of 2025, suggesting the base rate could fall to around 3.75%. If the Bank maintains its recent reductions of 0.25 basis points, this would reflect a gradual but consistent easing of rates.

However, analysts across major financial institutions have varied predictions on how low rates could go. Santander forecasts the interest rate cuts will take the base rate to 3.75% by the end of 2025, while Barclays projects an even sharper drop to 3.5%. Morgan Stanley believes the rate could reach 3.5% by the end of 2025, but Goldman Sachs predicts a fall to 3.25% by June 2026.

Longer-term expectations by Santander show rates stabilising between 3% and 4%, whereas Oxford Economics suggests they could sink further to 2.5% by 2027, holding at that level to 2029.

Recent UK Interest Rate Cuts

At the March 2025 meeting, the Monetary Policy Committee (MPC) chose to hold the base rate steady, due to concerns that inflation could resurge. The decision was largely in line with market expectations, with eight MPC members voting to maintain the rate, and one voting in favour of a cut.

This followed a February cut from 4.75% to 4.5%, bringing the base rate 75 basis points below its August 2023 peak of 5.25%. Previous reductions occurred in August 2024 (to 5.0%) and in November 2024 (to 4.75%).

The next rate decision is scheduled for the 8th of May, and predictions point towards an interest rate cut. However, this will likely depend not only on inflation trends but also on wider economic risks. Including the potential fallout from escalating global trade tensions, particularly those tied to proposed tariffs from the U.S.

Previous Inflation Leading
to Interest Rates Spiking

The UK experienced a dramatic spike in inflation in the aftermath of the COVID-19 pandemic and the 2022 energy price crisis triggered by the Russia-Ukraine War. This prompted the Bank of England to raise interest rates drastically from a record low of 0.1% in December 2021 to 5.25% by August 2023.

Inflation has since cooled considerably. The latest data from the Office for National Statistics (ONS) showed consumer price inflation (CPI) at 2.8% in the year to February 2025. While still above the Bank’s 2% target, policymakers expect it to return to target over the next 12 months. However, any unexpected uptick could delay further interest rate cuts.

How Does the Base Rate Affect Investors?

Lower interest rates have significant implications for property investors, particularly those holding buy-to-let (BTL) mortgages on variable rates. As an example, according to Get Ground, a 0.25 percentage interest rate cut could save a landlord with a £150,000 mortgage roughly £372 per year in interest payments, boosting profitability.

As borrowing costs decrease, mortgage affordability typically improves, which may increase demand in the property market. This, in turn, could drive up house prices, benefiting investors through capital appreciation. However, the flip side is that improved affordability might spur greater competition, especially in high-demand urban markets such as London, Manchester, and Leeds.