Industry figures have responded with cautious optimism after the Bank of England cut the interest rate for the first time in more than four years.
Yesterday (1 August), the bank’s monetary policy committee dropped the base rate by 0.25 per cent, to sit at 5 per cent.
The base rate was cut to a record low of 0.1 per cent during the Covid pandemic, in a bid to encourage borrowing. It then started to rise in late 2021 before rocketing in response to inflation fuelled by the war in Ukraine and Liz Truss’ poorly received mini-Budget, hitting a high of 5.25 per cent in August 2023.
The announcement comes days after the Construction Products Association (CPA) anticipated that construction output would fall by 2.9 per cent by the end of this year, in part due to the impact of high mortgage rates on housing demand. The CPA also forecast output then recovering by 2 per cent by the end of 2025.
CPA economics director Noble Francis told Construction News that “even though mortgage rates are likely to fall as interest rates are cut, the impact will still be limited, given that fixed-rate mortgage rates already factor in medium-term base rate cuts”.
He added that construction activity was likely to rise by the end of this year and the next, reflecting a lag between falling interest rates and the impact on demand for property.
Chris Smith, head of specialist equipment at Aldermore Bank, said the base rate cut represents a “positive signal” for construction, strengthening market confidence and setting the stage for continued economic support.
He said: “It suggests a more conducive environment for investment and borrowing – both critical for large-scale construction projects.
“Developers and contractors can take this as a sign of improving economic stability, boosting confidence to initiate and commit to new projects.”
National Federation of Builders chief executive Richard Beresford welcomed the news, saying: “From housing and commercial premises, to renewables and roads, more affordable lending will help more projects get off the ground.
“However, the clear message from [the] announcement was to not expect continued cuts, as the governor of the Bank of England is cautious about cutting rates too quickly or by too much.
“This places greater pressure on the government to deliver strategic reforms across planning, procurement and regulation, which are essential to relieving some of the financial burdens that currently stop projects being delivered.”
Kelly Boorman, national head of construction at consultancy RSM UK, said that while the base rate cut was too small to have an immediate impact, it “continues to create optimism that rates are coming down and facility renewals will be at lower rates in the longer term, which will generate more funding”.
She also warned that higher construction output would create more demand for skilled workers, leading to “significant wage inflation” in the sector.
Boorman’s colleague, economist Thomas Pugh, added that he expected interest rates to fall slowly, reaching 4.75 per cent at the end of the year and 3.75 per cent by the close of 2025.
“This was very much a ‘hawkish’ cut,” he said. “The vote was as close as could be, with four members voting to keep rates on hold and bank governor Andrew Bailey saying the committee is cautious about cutting ‘too quickly or by too much’.”
Developers said the news signalled optimism that could help bring projects forward.
Adam Higgins, co-founder of property developer and investor Capital & Centric, said the rate cut would “reignite confidence in the market and help to accelerate property schemes that have stalled”.
Meanwhile, Georgina Lynch, managing director of property developer PJ Livesey,, said it was “very welcome news for the property sector and will send a message of confidence to homebuyers”.
Source: Construction News