The near-term outlook for inflation will keep the Bank of England on its toes, but it won’t prevent further interest rate cuts this year. We expect the Bank of England (BOE) to lower Bank Rate to 3.75% by end-2025.

• We expect inflation to fall back below 2.5% y/y in the second half of 2026. It is this medium-term inflation outlook that we think will be of greater importance to the BoE.
• Recent macroeconomic development reinforces our view that yield-driven capital growth will be relatively muted this year. That said, analysis of real estate fundamentals and consumer finances shows there remain plenty of reasons for optimism.
• Grade A office vacancy rates are at record lows, and our analysis of construction data suggests this is unlikely to change anytime soon. 
• 18% of UK Commercial Real Estate investment volume last year was into the Retail sector, its highest market share in seven years.

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