In a research note published overnight, HSBC says it now expects the Bank of England (BoE) to cut the base rate in December, by 25 basis points. It had previously expected a hold.
This, the bank says, is in line with market expectations, which are pricing in a 93% chance of a cut. Mortgage experts said a cut by the Bank of England will send the property market into “full-on beast mode” next year.
HSBC expects a 5-4 vote to cut, with Governor Andrew Bailey switching his vote from November, noting ‘in our view the last thing the sterling rate market needs right now is the BoE adding to a sense of confusion.
‘Governor Bailey will be aware of this. Given he’s not made any public comment that pushes back against market pricing, we fall in line with the market and assume a December cut.
‘Beyond that, we see another three 25bp Bank Rate cuts in 2026 (at the February, April and July MPR meetings). And we keep our sub-market terminal rate forecast of 3.00%.
‘We think that policy will be returned to a neutral stance, and that a 3.50-3.75% range is too high for the UK neutral rate given its sluggish productivity growth.’
Full-on beast mode
Ben Perks, Managing Director at Stourbridge-based Orchard Financial Advisers, said an interest rate cut appears to be nailed on.
He said: “It will give the property market a real shot in the arm and launch borrowers into 2026 in full-on beast mode.
“Whilst the economy looks lacklustre, Bailey and the Monetary Policy Committee could lead the way and ignite some growth in the property sector.”
Omer Mehmet, Managing Director at Welling-based Trinity Finance, said while a cut looks likely next week, as HSBC states, the next set of inflation data will be key: “Markets are bracing for the Bank of England to cut next week, with Governor Andrew Bailey shifting to a dove.
“But before the rate decision we are due the latest inflation data, which, if it doesn’t play ball, still has the potential to throw a spanner in the works.”
Riz Malik, Director at Southend-on-Sea-based R3 Wealth, said that if rate cuts come, they will come at the right time: “Given 2026 has approximately 1.9 million fixed rate deals ending, with many of those borrowers coming off very low rates, a 2026 packed with rate cuts will come as welcome news to borrowers.”
Sterling market confusion
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said: “The Pound faces a challenging 2026 outlook as inflation trends toward 2%, growth slows to 0.9% and the labour market weakens, all of which points to further Bank of England rate cuts and currency pressure.
“The 18 December 0.25% cut to 3.75% is just over 90% priced in. At November’s meeting, before the Budget, Governor Bailey swung a tight 5-4 vote to hold at 4%, with four members backing a cut, setting up December for action. The real debate centres on 2026’s pace: the OECD predicts two more cuts to 3.5% by June before pausing, while HSBC forecasts a more aggressive path to 3% by year-end.
“Either trajectory suggests continued Pound weakness, particularly against the Euro. HSBC’s note about avoiding “sterling market confusion” is astute. With UK fiscal policy tightening while the eurozone loosens, this divergence creates additional pressure on the Pound and potentially forces more aggressive BoE easing than anticipated.”
Shaun Sturgess, Director at Swansea-based Sturgess Mortgage Solutions, added: “2026 is shaping up to be a far more active year than 2025, with lower mortgage rates powering the property market and boosting sentiment among borrowers.”
HSBC’s prediction comes as lenders aggressively cut rates, with Santander on Friday announcing a rate at 3.51%.
Photo by Aleksandar Živković on Unsplash
