Reeves shared projections from the OBR, which said CPI inflation will average 2.5% this year, 2.6% in 2025, then 2.3% in 2026, 2.1% in 2027, 2.1% in 2028 and 2.0% in 2029.
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The Bank of England will almost certainly cut interest rates tomorrow in what would be a welcome move for property buyers and sellers, as well as estate agents.
A slowdown in business activity in October revealed in yesterday’s final S&P Global UK Composite PMI survey suggested a degree of uncertainty ahead of the budget. The index fell from 52.5 to 51.8, its lowest reading since November last year. But economists still expect interest rates to be cut by 0.25%, from 5% to 4.75%, when the Bank’s Monetary Policy Committee (MPC) meet tomorrow.
UK estate agents have reported more buyer interest since summer following the BoE rate cut in August, with buyer enquiries increasing significantly in recent weeks.
The Bank cut interest rates from 5.25% to 5% in August, which was the first drop in more than four years.
UK inflation fell to 1.7% in the year to September, the lowest rate since April 2021.
The drop in the rate was larger than expected thanks in part to lower airfares and petrol prices – economists had predicted a 1.9% fall.
It also means inflation is now below the Bank of England’s 2% target, paving the way for interest rates to be cut further next week.
Financial markets have been pricing in a interest rate cut for the UK at the next Bank of England tomorrow, with all 72 economist in a Reuters poll taken 22-28 October forecasting that BoE will cut its Bank Rate by a quarter-point next week to 4.75%.
But while the Bank is facing growing pressure to also cut interest rates in December as wage growth slows, almost near-two-thirds of respondents expect no interest rate move in December, suggesting the BoE will stick to a cautious approach.
Among 16 gilt-edged market makers, a majority of 11 expected the MPC to hold rates in December, while five expected a cut. Interest rate futures are pricing in reductions in both November and December.
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Chancellor Rachel Reeves’ Budget statement this afternoon highlighted tax hikes for both working individuals and British businesses.
She told the Commons that the Budget will raise taxes by £40bn with an approach that she believes will achieve growth in the near future.
Reeved also said the OBR has published a detailed assessment of Labour’s policies for the next decade.
Listing its forecasts, she announced that real GDP growth will be 1.1% in 2024, 2% in 2025, 1.8% in 2026, 1.5% in 2027, 1.5% in 2028, and 1.6% in 2029.
“This Budget will permanently increase the supply capacity of the economy, boosting long-term growth,” she said.
There were several tax announcements that directly and indirectly affect those working and investing in the property industry.
National Insurance
There was bad news for employers, as Reeves announced that National Insurance contributions by employers will rise from 13.8% to 15%.
In addition, the threshold at which businesses start paying National Insurance on a workers’ earnings will be lowered from £9,100 to £5,000.
Capital gains
The rates on residential property will remain at 18% and 24%.
Inheritance Tax
Reeves said she will extend the inheritance tax threshold freeze for a further two years to 2030.
That means the first £325,000 of any estate can be inherited tax-free, rising to £500,000 if the estate includes a residence passed to direct descendants, and £1m when a tax free allowance is passed to a surviving spouse or civil partner, she said.
She added that she will bring inherited pensions into inheritance tax from April 2027.
Stamp duty
Reeves announced that the government will increase the stamp duty land surcharge for second-homes by 2% to 5% from tomorrow.
Right to Buy discounts
The chancellor is slashing the ‘right to buy’ discount given to those purchasing their council home.
New homes
The chancellor says the government will invest more than £5bn to deliver their housing plan.
Affordable housing
She added this Budget will increase the Affordable Homes Programme to £3.1bn, provide £3bn worth of support and guarantees to increase the supply of homes and support small housebuilders.
Property professionals react to the statement:
Richard Donnell, head of research and insight at Zoopla commented: “Changes to stamp duty land tax, together with higher property prices, has seen stamp duty raise over £11.5bn in 2023/23. It’s a tax that falls most heavily on buyers in southern England with London and the South East accounting for over 50 per cent of annual tax receipts from stamp duty.
“The extra 2% cost on buying second homes and investment property will reduce demand from second home buyers and investors. Second home buyers are already responding to last year’s Budget which allowed councils to charge double council tax for second homes. This is resulting in a higher level of selling by second home owners. In areas with above average second homes we have seen four times more homes come to the market.
“This announcement also comes with changes announced previously which will see first time buyers pay more from next year. A return to previous stamp duty thresholds from April 2025 will result in an additional 20 per cent of first-time buyers being liable to pay stamp duty and a further 14% will be required to pay a partial amount. The impact is felt across London and the South East in markets with average house prices over £425,000. This will increase costs for buyers by an average of £5,600 in London and £1,390 in the South East. In parts of London with home values over £600,000, FTB could pay an additional £15,000 in stamp duty. Buyers will want to take this off the price they pay for homes, keeping price rises in check.”
“It’s positive to see that capital gains tax has not increased for landlords (already 24% for higher rate taxpayers). The private rented sector has seen static supply since tax changes introduced in 2016 and there is a steady net selling by landlords in response to tax policy but also greater regulation of housing and higher mortgage rates. We need to keep as many landlords as possible in the market to provide choice for renters facing limited choice and to prevent rents rising faster than earnings, which hits those on low incomes the hardest.”
Nick Sanderson, Audley Group CEO commented: “Planning policy will continue to haunt the government if it ignores the need for reform. Labour’s ‘golden rules’ and commitments to planning reform were a step in the right direction at the beginning of its tenure but now we need more detail. There must be a clear commitment to the types of home that will be built, and how the planning system will help meet those targets, rather than hinder. More planning officers is a start, but a progressive and forward-thinking government would prioritise the delivery of age-specific properties across the UK. The benefits would be vast; creating space in the housing market, enabling people to live healthy lives for longer, alleviating pressure on the NHS and ultimately improving the quality of life for our ageing population.”
Angharad Truman, ARLA Propertymark president, said: “We continue to see a growing disparity in the number of private rented homes available against a backdrop of increasing demand from tenants. Therefore, it is disappointing to see that the UK Government did not address this fundamental issue in its Autumn Budget and instead has announced yet another blow for landlords by increasing capital gains tax.
“The private rented sector plays a crucial role in housing the nation with over 4.6 million homes in England alone, therefore it is imperative that the UK Government does not continue to push landlords out of the market.
“In order to ultimately keep people in much needed and affordable private rented homes, we continue to stress the importance of support for the private rented sector including incentives for landlords to invest rather than continuing to penalise them through regulatory bombardment and increasing costs.”
Jon Byers, founder of Anderson Rose, remarked: “Speculation around the Autumn Statement has been swirling since the first day Labour took control of Parliament, with rumours and leaks around various wealth taxes spooking the market and taking out any short-lived momentum achieved since the General Election result was announced. We understand measures need to be taken to fund the Government’s public spending plans, however, there needs to be a greater focus on the property industry, as a busy and prosperous market will reap rewards for the Treasury in the long-term.
“We feel one of the hardest blows to take for the prime property market from this Budget is the further SDLT increase of 1% to international purchasers, which means depending on the value and circumstances of the transaction, could result in a maximum rate of 17%. We have already witnessed a sharp drop off in activity from overseas buyers in recent years and despite talk of making Britain an attractive place to invest this will only deter them further.
“Added to this, the capital gains tax increase means less sellers are likely to sell, which could force the price of property (and stamp duty) higher and out of the reach of even more people. If Labour are serious about promoting investment in the UK then they need to encourage a free market and make the property market more accessible not discourage individuals with higher taxes and punitive red tape.”
Ryan Etchells, chief commercial officer at Together, said: “The chancellor’s reduction in the discount allowing tenants to buy their council homes under the Right-to-Buy (RTB) scheme will mean they will have to pay, in most cases, tens of thousands of pounds more to be able to get on the housing ladder.
“The government says this will make the RTB scheme ‘fairer and more sustainable’ but the move seems incredibly unfair, when some people who may have lived in their council homes for years and had planned to make it their own will now be simply locked out of home-ownership for good.
“Together’s own research shows nearly a third want to see housing and planning reforms addressed in the first 12 months of Labour’s government, with 12% wanting more help for first-time buyers and 7% keen to see the creation of new property schemes to help assist people’s property ambitions by January 2025. Disappointingly, the ruling on RTB works directly against the public’s wishes.”
Joshua Elash, chief executive officer of lender MT Finance Group, said: “In the short term, the increases to NI employers’ contributions may have a negative impact on wage growth and may lead to a slower labour market but we expect this higher rate to be quickly normalised.
“Equally, the increases to capital gains taxes aren’t as aggressive as mooted and at the new levels will not dampen any serious private equity activity. We don’t see asset holders across any sector sitting tight for an extended period, or relocating, at the new tax levels.
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The Bank of England is expected to reduce interest rates significantly faster than financial markets currently anticipate, according to new forecasts from Goldman Sachs.
The Wall Street investment bank projects that the UK’s base rate could drop to 2.75% by November 2025, driven by continued progress on disinflation and dovish signals from policymakers.
At present, the UK base rate stands at 5%, which Goldman Sachs described as “notably restrictive.” The investment bank’s researchers believe that the Bank of England will lower rates more aggressively than is priced in by markets, as inflation continues to ease. In contrast, market consensus suggests a slower decline, with rates expected to settle at around 3.5%.
Differing views on rate cuts
Goldman Sachs’ predictions align with those from Deutsche Bank, which also expects faster-than-anticipated cuts, albeit at a slower pace. Deutsche Bank forecasts the base rate to fall to 3% by February 2026. Meanwhile, financial markets currently expect two 25 basis point reductions by the Bank of England in November and December this year, bringing the base rate down to 4.5%.
The projections follow a faster-than-expected drop in UK inflation, which fell to an annual rate of 1.7% in September from 2.2% in August. This has raised expectations that the Bank of England will ease monetary policy, although views within the Bank’s Monetary Policy Committee (MPC) differ on how quickly to act.
Andrew Bailey, the Bank’s governor, has suggested the MPC could be more aggressive in lowering rates if inflation stabilises, while Huw Pill, the Bank’s chief economist, has favoured a more gradual approach. The panel’s upcoming discussions at the International Monetary Fund meetings in Washington are expected to offer further insights into the Bank’s strategy.
Balancing economic pressures
The challenge for policymakers is determining the “neutral interest rate”—the rate that neither stimulates nor constrains economic activity. Goldman Sachs estimates the UK’s neutral rate at 2.75%, up from the negative real-terms rates seen following the global financial crisis. After accounting for inflation, they estimate the real neutral interest rate to be around 0.8%, in line with historical averages.
However, determining this rate is complicated. The UK economy faces a unique mix of factors, including slow productivity growth, rising public debt, and an ageing population, all of which weigh on long-term economic potential. The country’s debt-to-GDP ratio has surged from 35% in 2007 to nearly 100%, its highest level since the 1960s, placing further pressure on the economy.
In addition, Chancellor Rachel Reeves is expected to increase borrowing in the upcoming Autumn Budget to fund public investment, a move analysts believe is unlikely to cause the kind of market instability triggered by former Prime Minister Liz Truss’s tax cuts last year. Reeves’ approach is expected to focus on investments that could boost long-term growth, rather than short-term fiscal giveaways.
Uncertainties around neutral interest rates
Central bankers often use estimates of the neutral interest rate to guide monetary policy, but these estimates are subject to significant uncertainty. A miscalculation could lead to rates that are either too high, constraining economic growth, or too low, stoking inflation. Goldman Sachs noted that while the Bank of England has indicated a neutral rate of around 2-2.5%, it remains cautious about placing too much weight on this estimate.
As the Bank of England navigates these uncertainties, the debate over how quickly to lower rates will be shaped by evolving economic data, particularly inflation trends and global economic conditions. With interest rates potentially falling as low as 2.75% next year, businesses and consumers alike will be watching closely to see how the Bank of England responds to the changing economic landscape.
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The Housing Ombudsman Service, which is expected to become the main regulator of landlords after the Renters’ Rights Bill becomes law, has said that those who ignore its decisions should have to pay back rent to their tenants via a Rent Repayment Order.
Its chief, Richard Blakeway, made the comments during an evidence session at Parliament yesterday in front of its Housing Select Committee, including housing minister Matthew Pennycook.
The Renters’ Rights Bill includes proposals that will see a completely new mechanism for tenants to complain about – and get redress from – their landlords when tenancies go wrong and the Housing Ombudsman Service is widely expected to get the role.
During the committee’s questioning Blakeway said one of the areas not tackled by the Bill was enforcement and, in particular, what would happen if landlords ignored the ombudsman’s ‘remedies’ when tenants complained.
Rent repayment
Blakeway suggested that, rather than local authorities chase up non-compliant landlords, instead landlords should be subject to rent repayment orders via the First Tier Tribunal system, as is the case currently when they are found not to licenced properties within areas covered by selective or HMO schemes.
The Bill already includes measures that will see landlords who do not sign up to the ombudsman face RROs, which in London can run into tens of thousands of pounds, so this would be an extension of this idea.
Reaction
Sean Hooker, Head of Redress at the PRS, says: “The ‘Big Stick’ approach is not the full picture – of course, landlords who seriously break the law and regulations need to be cracked down on, but most tenant complaints are small issues which have a big impact of on their quality of life.
“They cannot wait weeks or months whilst a contorted process considers maladministration or enforcement; they just want things put right.
“So I agree that a strong framework is needed to intervene and help landlords to do the right thing before things get worse.
“This is essential to be put in place before the ombudsman is set loose; landlords and tenants should have access to help and advice, access to mediation and private resolution and signposting to what help is available.
“The agent redress schemes already do this at the moment and I am keen these services are available to tenants who deal directly with landlords.”
The Housing Ombudsman Service is currently the main regulator of the social housing sector.
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