Bank of England leaves rates steady in narrow decision
The Bank of England Monetary Policy Committee (MPC) has voted to leave the UK Base Rate unchanged at 4.00% at its November meeting; but did so in a close-run decision, with the Governor using his casting vote. Five rate setters supported no change, while four preferred a 25 bps reduction.
In the previous meeting the vote was seven for no change and two for a cut, which demonstrates the mood on the MPC is becoming more dovish. This is probably because inflation remained steady at 3.8% in August and September, confounding expectations it would rise to 4.0%.
The third sentence in the MPC meeting press statement said: “CPI inflation is judged to have peaked”, which along with the narrow vote, is a strong hint to the financial markets that the next meeting, in December, will see a reduction. This is consistent with the Bank wanting to avoid accusations of political interference that may have followed had it cut rates before the Chancellor’s Budget on 26th November.
Earlier this month, the US Federal Reserve cut its policy rate by 25 bps, as did the Bank of Canada; while the ECB opted for no change.
A Bank of England interest rate cut next month may help lessen the blow to consumers if the Chancellor does increases taxes in the Budget, as is widely expected. However, we note that some pundits are raising the possibility that ministers, through off-the-record media briefings, might be exaggerating the level of upcoming tax rises in the hope there is a wave of relief among voters when the actual Budget measures are made public.
The Bank of England has also upgraded its GDP forecast for this year to 1.5%, which is in line with a recent forecast from EY Item Club. This shows that growth in 2025 is proving to have been stronger than many had expected, and begs the question: if we were all too downbeat on growth prospects in 2025, are we are similarly being too pessimistic on next year’s outlook? Given GDP continued to grow on a three-month comparison throughout this year, it does feel like some of the uber-bearish commentary that was circulating over the summer has proved to be overdone.
Turning to the implications for the property market, the prospect of a Base Rate cut to finish the year, while unlikely to vastly change market dynamics, will be a welcome shot in the arm for confidence. Overall, 2025 has been a moderately disappointing year for commercial property investment – disappointing because more was hoped of this year when it began, but moderately, because 2025 has seen a modest improvement in activity compared to 2024.
Based on MSCI data, capital values for the industrial and retail sectors have gradually risen in 2025, although offices values (at least on the aggregate MSCI level) have ticked downwards. The subdued conditions in the investment market though are at odds with the steady but unspectacular recovery that is occurring in occupier markets. For offices in particular, this mismatch is puzzling as the pessimism on office investment is driven by fears on the impact of homeworking on occupier markets, but the leasing statistics point to a recovery, not distress.
Our view is that the timing of the Budget falling in late November means that Q4 commercial property investment volumes will be subdued by the standards of a typical final quarter of the year. However, a December Base Rate cut, and (assuming the Chancellor wins over the bond market) improved stability for gilt yields post-Budget, could create an air of positivity surrounding property going into 2026. If this does prove to the be the case, we believe investors will then give more thought to the contrast between conditions in the investment and occupiers markets, and conclude a firm leasing market is a fundamental that cannot be overlooked and justifies returning to the investment market.
