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UK interest rates set to decline faster than previously anticipated

The latest PMI data supports the view that economic activity is cooling, which should help ease inflation pressures. As a result, CPI is now expected to return to the 2.0% target in 2026 and remain below it through most of 2027. In line with this softer outlook, economists have lowered their interest rate forecasts, now projecting the base rate to fall to 3.00% by 2026. This implies a faster pace of rate cuts than current market pricing, which could help unlock demand and support activity ahead.

Sentiment strengthens: UK business confidence hits 9-year high 
 

The Lloyds Business Barometer rose to +51% in June, its highest level in nine years and well above the long-term average of +29%, signalling strong business confidence. This extends May’s sharp rebound, supported by easing global trade tensions and a decline in economic uncertainty. Additionally, Lloyds Economic Optimism rose to 45%, its highest level since August 2024.

Net lending to UK CRE gains momentum… 

Net lending to UK commercial real estate remained strong in May, totalling £2.15 billion, the highest monthly figure in five years. The increase was driven by a sharp rise in lending to standing developments, which jumped to £2bn from £380m in April. Rising confidence that capital values have stabilised is driving a pickup in lending, including riskier development finance. With rate cuts expected and credit conditions easing, lending should support a gradual rise in investment over H2 2025.