After 'unrelentingly sluggish' economic growth and with tax hikes expected, mortgage professionals look to Bank of England for confidence boost
UK economic growth slowed to just 0.1 per cent in the third quarter of 2025, falling short of economists’ expectations and marking a significant deceleration from the 0.3 per cent growth recorded in the previous quarter. This sluggish performance has further shortened the odds of a December interest rate cut and piles pressure on the government ahead of the Autumn Budget on 26 November.
Gaurav Shukla, of Home Me Mortgages, said the question of a 25 basis point cut next month should not be up for debate and that a reduction would “almost certainly inject some much-needed confidence into the mortgage market and prompt more borrowers to start applications”.
While December is traditionally a quieter month for mortgage activity, any subsequent surge in applications is likely to remain modest until January.
“However, a rate cut would still have a positive ripple effect: it would boost consumer sentiment, stimulate the wider housing market, and could trigger increased competition among lenders,” Shukla said. “If we see a meaningful base rate reduction, that competitive pressure could set us up for a much stronger start to 2026.”
READ MORE: UK economic growth slows ahead of Autumn Budget
The gloomier-than-expected figures have economists almost certain of a December cut. Martin Beck, chief economist at WPI Strategy, noted: “Combined with a softening labour market, the figures add to evidence that economic and political uncertainty is weighing on activity and leave a Bank of England rate cut in December even more likely.” Rob Wood, chief UK economist at Pantheon Macroeconomics, told CNBC that a cut is likely even with an upside GDP surprise.
The latest figures have added more gloom to Chancellor Rachel Reeves’s in-tray and are a setback ahead of the Budget. The government had hoped that stronger growth would boost tax revenues and support public spending plans. Instead, the weak data increases pressure to balance fiscal responsibility with the need to support the economy.
In response to the latest figures, Ms Reeves stated: “Each of us must do our bit for the security of our country and the brightness of its future. We had the fastest-growing economy in the G7 in the first half of the year, but there is more to do to build an economy that works for working people. At my Budget later this month, I will take the fair decisions to build a strong economy that helps us to continue to cut waiting lists, cut the national debt, and cut the cost of living.”
Harry Arnold, of Anderson Harris, said most clients are holding off making a move until things become clearer post-Budget, but even then he remains wary of tax bombshells, adding: “On the refinance side, we are recommending that clients lock things in ahead of the 26th, just in case of fireworks from the Chancellor or political fallout from unpopular policies.
“Rates have been ticking down in the last few weeks, which does remove impetus for clients to act; however, we always counsel safety first. It is easy to slip into thinking that what is happening will continue into the future. The grumblings in the bond market over the last 24 hours, with all of the briefing in Number 10, are a gentle reminder that events can drive sentiment as well as data.”
The scale of the fiscal challenge is daunting, and Suren Thiru, economics director at the ICAEW, told Reuters: “The UK’s unrelentingly sluggish growth trajectory is a headache for the Chancellor as it will inevitably mean a substantial fiscal shortfall at the Budget, making major tax hikes look unavoidable.”
James Smith, of the Resolution Foundation, added in The Guardian: “This latest slowdown shows the scale of the challenge facing the government as it seeks to kickstart growth. The next challenge will be to ensure that the upcoming Budget supports rather than hinders growth – no mean feat given the scale of fiscal consolidation that is expected.”
For brokers, lower interest rates could help stimulate demand and activity in the property sector, providing some relief after a period of subdued growth. However, the potential for new tax rises and continued economic uncertainty means that the outlook remains complex.
As Amanda Blanc, chief executive of Aviva, told CNBC: “You can deal with certainty; what you cannot deal with is speculation.”
