Leading Indicators | BoE cuts rates to a 19-month low
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Here we look at the leading indicators in the world of economics.
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BoE resumes monetary easing
As anticipated, the Bank of England (BoE) resumed its easing cycle last week, lowering interest rates by -25bps to 4.50%, the lowest level since June 2023. The Monetary Policy Committee reaffirmed a ‘cautious and gradual’ approach to policy adjustments but acknowledged that uncertainty could influence future decisions. Notably, two external policymakers advocated for a larger 50bps cut, prompting markets to raise expectations for further easing. Money markets now anticipate three additional quarter-point cuts this year, which would bring the bank rate to 3.75% by year-end.
Meanwhile, the UK 5-year SONIA swap rate has dipped below 4%, currently standing at 3.87%, down -37bps over the month. This shift, combined with the recent rate cut is expected to create a more favourable investment environment, and may potentially attract further cross-border capital inflows. In fact, momentum already appears to be building, with cross-border capital more active in the UK in Q4, as overseas investment rose +59% quarter-on-quarter to £6.3bn, contributing to 46% of UK commercial real estate volumes in Q4 2024.
Divergence in the UK growth outlook
Released last week, the BoE’s February Monetary Policy Report predicts the UK economy will expand by +0.75% in 2025, below the +1.50% forecast in November 2024, reflecting weaker-than-expected economic momentum and declining business and consumer confidence. The outlook for 2026, however, has been marginally upgraded, with GDP growth expected to rise to +1.50% (previously +1.25%).
Inflation is forecast to rise in the first half of the year, peaking at 3.7% by Q3 2025, driven by higher global energy costs, regulatory price adjustments, and fiscal measures from the Autumn Budget. Despite this, the central bank expects the increase to be temporary, with inflation projected to ease in the final quarter of the year.
The bigger picture is that the range of forecast outcomes remains wide. For instance, the most optimistic contributors to the Treasury’s latest consensus forecasts predict a +1.70% rise in GDP this year, whilst the most pessimistic, a rise of just 0.70%.
Clean Power 30: What it means for real estate
The UK government’s Clean Power 30 Action Plan (CP30) sets a pathway to achieve the ambitious target of 95% renewable energy by 2030. A key part of this is the overhaul of the current grid connection system, which has been a longstanding issue causing delays in both capacity generation and development due to limited supply. A shift from a ‘first come, first served’ approach to a needs-based model could help prioritise strategically important projects, unlocking as much as 500GW of capacity. For the real estate sector, the impact is twofold. On the one hand, projects in constrained areas may see reduced delays, accelerating development timelines. On the other, shifting grid priorities may require developers to reassess location feasibility and energy strategies.
However, with a renewed focus on infrastructure investment, CP30 could ultimately support the transition to a more sustainable, energy-secure property market.
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