Bank of England set for more rate cuts with economy still underperforming

UK Economic Growth Slows, Pointing to Further Interest Rate Cuts

The UK economy grew by 1.3% in 2025, a slight improvement on 2024's 1.1% and marginally better than forecasts. However, growth in the final quarter of the year disappointed, coming in at just 0.1%.

What the Latest Figures Show

The Office for National Statistics (ONS) has revised down its earlier estimates for the end of 2025. November's growth was cut from 0.3% to 0.2%, while October saw a 0.1% contraction.

When adjusted for inflation, the economy grew by just 0.1% in the final quarter, following two consecutive periods of 0.1% decline in the three months to November and October.

What This Means for Interest Rates

Despite reasonable growth across the full year, the weak performance in recent months has led experts to predict the Bank of England will cut interest rates again to boost economic activity.

For homeowners and prospective buyers working with mortgage advisers like Mortgage Tree, this could mean more favourable borrowing conditions ahead.

Jeremy Batstone-Carr, European strategist at Raymond James Investment Services, explained: "Growth of just 0.1% in both Q3 and Q4 confirms the economy ended 2025 without gaining momentum. Activity remained below trend at 1.3% for the year—only slightly better than 2024's 1.1%.

"One-off measures in the Chancellor's November Budget temporarily boosted activity but weren't sustained in December. The service sector showed no growth in the final quarter despite the festive season.

"Bank of England rate-setters have shifted their tone and appear ready to cut the base rate for a seventh time, possibly sooner rather than later. Markets are already pricing in a March rate cut, and today's weak data—combined with easing inflation—suggests households and businesses may not have long to wait."

A Potential Rate Cut on the Horizon

Luke Bartholomew, deputy chief economist at Aberdeen, said: "The UK managed very modest growth at the end of last year, entering 2026 with little momentum. However, surveys suggested sentiment improved after the Budget, which could support activity this year.

"Recent political uncertainty may reverse that bounce, and it's difficult to see what will drive sustained growth. The Bank of England is set to continue lowering interest rates to support the economy, with the next cut expected in March."

For those considering remortgaging or purchasing a home, Mortgage Tree can help navigate these changing conditions and identify the best mortgage products as rates potentially fall further.

Signs of Resilience

Kevin Brown, savings expert at Scottish Friendly, offered a more optimistic view: "The UK economy carved out another quarter of modest growth at the end of 2025, with annual growth of 1.3% showing stubborn resilience.

"High interest rates, persistent inflation, and months of Budget uncertainty could have stalled activity entirely. Instead, growth held up—just barely.

"Once the Autumn Budget fog cleared, parts of the economy regained direction, particularly in services. This offset ongoing weakness in manufacturing and construction, keeping the economy moving forward."

The Outlook

With the Bank of England widely expected to cut rates in March, borrowers may soon see improved mortgage deals. Mortgage Tree continues to monitor these developments closely to help clients secure competitive rates in this evolving market.