Bank holds Base Rate in June, but a third of the MPC favoured a cut
As was widely expected, the Bank of England Monetary Policy Committee (MPC) left the Base Rate unchanged at 4.25% at its latest meeting, although the pattern of voting is worth noting. Three rate setters voted in favour of a cut, which we view as a significant minority at a time when some commentators had been suggesting the MPC might slow the pace of rate cuts.
Since it began cutting the Base Rate in August last year, the Bank has favoured one 25 bps reduction per calendar quarter. However, with CPI inflation well above target at 3.5% in April and 3.4% in May, some forecasters have focussed on a recent speech by Bank of England Chief Economist, Hugh Pill, where he suggested the MPC may need to advance more gradually.
However, with a third of the committee still prepared to vote for a cut despite the recent inflation uptick, we feel that a scenario of two more Base Rate reductions totalling 50 bps later this year remains a distinct possibility, particularly if growth remains weak. That Governor Andrew Bailey described interest rates as being "on a gradual downward path" is being interpreted by some as a hint that further cuts are in the pipeline.
Another factor muddying the situation for rate setters is the hostilities in the Middle East, which has caused a rise in the price of oil. At this early stage it is hard to tell what the potential is for further escalation, and what the impact will be at the petrol pump. Interestingly, the price of oil has not surged as high as during comparable recent geopolitical shocks. Six days on from the start of the missile strikes on Iran and Israel, Brent Crude oil was trading at around $79.00 a barrel on Thursday – compared to the $110.90 figure seen six days after Russia began its invasion of Ukraine. Oil is also trading below its 12-month high of $88.60.
However, were the situation to escalate further oil could surge higher in price, therefore events in the Middle East have added to the case for the MPC to pause and wait for more data.
That said, we note the geo-political risk that dominated minds at the last MPC meeting – the prospect of higher US tariffs – has from a UK perspective eased significantly with the signing of a trade deal. Also, there is some upcoming good news on inflation, with the Ofgem energy price cap set to fall by 7% in July.
From a property perspective, it is probably the above mentioned geo-political risks and slowing growth, rather than interest rates, that are the main concern of market participants. Values for industrial and retail property, based on MSCI data, have risen in 2025 albeit at a slow pace, but expectations at the start of the year were for a stronger recovery than we are currently seeing.
Office values have continued to edge down on the MSCI measure, but the rate of decline has slowed significantly. Indeed, on the issue that has weighed heavily on the office investment market – the popularity of home working – recent months have seen several major corporations order their staff to come into the office more often.
Overall, the property investment market seems to have an air of ‘Keep calm and carry on’ about it. The recent financial markets volatility, tariff disputes and geopolitical risks have prevented the previously hoped for rebound for property in 2025, but critically those factors have not prompted a fresh wave of price slashing. Market discipline is holding, and news like the government announcing a huge capital investment package in the recent Spending Review is building confidence in medium to long-term prospects for the UK economy; which in turn will benefit property. Thursday saw the government publish its infrastructure strategy for the next decade, a £725 billion programme of building that covers transport links, schools, hospitals and flood defences across the country.
Our forecast remains for the MPC to cut the Base Rate again in August by 25 bps, and we believe that could set a positive tone for the post-summer holidays return to work in the property market in September. This raises the possibility of a more upbeat finish to the year.
