Interest rates in the UK serve as a powerful economic lever that influences everything from mortgages to the broader housing market. For investors, particularly those in Nigeria seeking opportunities in the UK, understanding the dynamics of UK interest rates is essential for making informed investment decisions.

What Are UK Interest Rates?

At the heart of the UK's financial system is the Bank of England (BoE), which sets the Bank Rate, or the base interest rate. This rate determines how much it costs for banks to borrow money from the BoE, and in turn, it affects the interest rates banks charge consumers and businesses. These rates influence everything from mortgages and car loans to business financing and savings accounts.

Interest rates are not static; they fluctuate based on the economic conditions of the country. When the economy is overheating with high inflation or too much borrowing, the BoE may raise interest rates to cool things down. Conversely, if the economy is struggling, the BoE may lower interest rates to stimulate spending, borrowing, and investment.

Factors that Affect Interest Rates

The Monetary Policy Committee (MPC) of the Bank of England meets regularly to decide whether to raise or lower the Bank Rate based on prevailing economic conditions. The MPC's decisions are influenced by a variety of factors, including:

• Inflation Rates: The BoE aims for an inflation rate around 2%. If inflation is above this level, the BoE may raise interest rates to curb spending and borrowing. Consumer Price Index (CPI) inflation stood at 2.5% in Q4 2024. However, the BoE anticipates an increase to 3.7% by Q3 2025 due to higher energy costs and regulatory price adjustments. Despite this, the BoE anticipates inflation to gradually decrease toward its 2% target by 2028.

• Economic Growth: If the economy is growing slowly, the BoE may lower interest rates to encourage borrowing and investment. Conversely, rising rates may be used to prevent an overheating economy.

• Global Economic Factors: The MPC takes global events into account, such as changes in oil prices or economic shifts in major global economies, which can impact the UK’s inflation and growth outlook. A Reuters poll in April 2025 revealed that over 40% of economists downgraded their UK growth forecasts, citing global trade tensions and domestic challenges. The IMF also revised its growth forecast for the UK downward to 1.1% from 1.6%.

Implications of the Rate Cut

On February 6, 2025, the BoE's MPC voted to lower the Bank Rate by 0.25 percentage points to 4.5%. This move followed a series of rate cuts intended to stimulate economic activity amidst signs of stagnation. The committee’s decision underscores the delicate balance between fostering growth and managing inflationary pressures.

The BoE's decision to lower interest rates has several key implications:

• Mortgage and Loan Costs: For homeowners and businesses with variable-rate loans, the rate cut means lower borrowing costs, easing financial pressure, and potentially boosting consumer spending and business investment.

• Currency and Investment Flows: The rate cut has led to a depreciation of the British pound, making UK assets more attractive to foreign investors seeking higher returns. However, the weaker pound could also raise concerns about inflation and purchasing power.

Impact on the UK Housing Market

Recently, the UK housing market has seen a surge in buyer activity, driven by stabilising mortgage rates. According to the UK House Price Index, transactions in March 2025 surged by 31.94% compared to the same month last year. This is largely due to a significant increase in first-time buyers and upsizers, who now account for nearly 60% of all transactions.

Additionally, recent data from the Office for National Statistics (ONS) shows that the average UK property price reached £268,000 in February 2025—£13,000 higher than the same time last year. Year-on-year values have risen by 5.4%, reflecting an ongoing upward trend in property prices despite the broader economic challenges. The number of transactions also rose, with sales in February 2025 being 28% higher than in February 2024 and 13% higher than in January 2025.

What This Means for You

For Nigerian investors, understanding the UK’s interest rate decisions and their influence on the housing market is essential. Here's how it impacts you:

• Strategic Time to Invest Abroad: With interest rates stabilising and the UK housing market on the upswing, now is an excellent time to explore investment in UK real estate. The market offers a hedge against the volatility of the naira and provides access to a stable currency and appreciating assets.

• UK Housing Beats Local Volatility: Unlike the more volatile Nigerian housing market, the UK offers a safer investment environment with clearer legal frameworks and better long-term growth potential. Despite ongoing inflation and economic challenges, the UK’s housing market is poised for upward growth, making it an attractive option for diversification.

• Focus on Capital Appreciation Rather Than Rent Yields: While the buy-to-let market remains cautious due to rental rule changes, investors focusing on capital appreciation in the UK property market are more likely to see returns as property values rise.

At PariVest, we simplify international investments, particularly in UK real estate. With our platform, you can access profitable opportunities, receive expert guidance, and stay informed about key economic shifts like interest rate changes. Let us help you make smart, informed investments in the UK property market and maximize your returns.

Ask us your questions at support@parivest.com.