The Monetary Policy Committee (MPC) of the Bank of England has voted to reduce the key base rate by a quarter point, from 4.25% to 4%. The fifth reduction since August last year, when rates started steadily coming down from 5.25%.

Financial markets anticipated the cut following the release of the Office for National Statistics (ONS) report, which indicated that the rate of UK unemployment had increased to 4.7% over the three-month period ending May, the highest level for four years. Average earnings growth, meanwhile, had slowed to 5% during the same period, the lowest level for almost three years.

In the context of the current sluggish economic growth, interest rate reductions could potentially stimulate the economy. The increase in disposable income, could foster increased spending by individuals and businesses, assisting economic recovery.

The rate reduction is anticipated to enhance buyer confidence and affordability, potentially fostering renewed momentum for the housing sector. The price sensitive property market continues to be a driver of growth for the economy, yet there are no further fiscal support measures on the horizon for the sector. There are concerns that the October Budget may introduce higher tax burdens, potentially negating the advantages of declining interest rates and potentially jeopardising the economic recovery.

Bank of England has indicated that the Bank would be prepared for subsequent cut rates if the jobs market showed signs of weakening. “Interest rates are still on a downward path, but any future rate cuts will need to be made gradually and carefully,” said Andrew Bailey, Governor of the Bank of England Governor.

A further cut, likely before the end of the year, will provide renewed momentum for property buyers, sellers and developers.