Real estate experts say additional interest rate cuts this year will help to create a "ripe" market for new deals after the Bank of England dropped rates to 4.5% on Thursday.

The Monetary Policy Committee decided to cut the Bank Rate from 4.75% during its February meeting following what it called "substantial progress on disinflation over the past two years".

Committee members voted by a majority of 7 to 2 to reduce interest rates. The two members who voted against wanted a reduction to 4.25%.

While the Bank's decision to cut interest rates has been welcomed by the property industry, economists have raised concern over its updated growth forecasts for UK GDP, which it slashed by half.

Rebecca Harper, head of investment at Rapleys, said in a statement that the decision to cut interest rates gave the property sector hope of additional cuts expected during the rest of the year.

"The move by the Bank of England to cut interest rates by 25 basis points was widely expected and, whilst welcome, will not particularly stimulate activity or confidence on its own merit.

"However, it's a step in the right direction and if, as widely speculated, there will be several more cuts this year then the market will be more ripe for new deal activity and refinancing which will be a real boost to property.

"Opportunities of course remain, most notably in alternatives where investors will seek to spread their risk but must understand the more nuanced mechanisms in these niche property sub-industries."

Bank of England Governor Andrew Bailey said in a press conference that progress on work to cut inflationary pressures had allowed the Committee to take the step to make monetary policy "less restrictive" this month.

He said the Bank expects to make additional cuts, but that it would have to "judge meeting-by-meeting how far and how fast these cuts are made".

"We live in an uncertain world and the road ahead will have bumps on it. We expect inflation to increase this year to a peak of about 3.7% before returning to the 2% target, and we will set Bank Rate to ensure that it does so sustainably," he said.

Bailey added that the Committee's decision to begin the year with an interest rates cut was largely due to the background of "a continued, gradual easing of underlying inflationary pressures in the UK economy."

"So while we expect inflation to rise again over the coming months, it is almost entirely due to factors that are not directly linked to underlying cost and price pressures in the economy, and factors that we expect to be temporary," he added.

Ajay Patel, director of investments and capital raising at Aprirose, said today's cut would be welcome to investors, but said it would have already been priced into their decision-making and debt, making it unlikely to make a huge difference on its own.

He added: "If four or five more interest rates cuts do indeed follow, depending on which voices you listen to, then the market will be much better placed for a stimulation of activity. That said, opportunities for savvy investors remain, particularly where there is clever asset management to be carried out."

Daniel Austin, chief executive and co-founder at ASK Partners, agreed that the trajectory of rate cuts would be crucial for investors and developers this year. He said: "With inflation now closer to the Bank’s 2% target, there is renewed optimism that financing conditions will improve, unlocking capital for new developments.

"Demand remains strong, particularly in sectors like co-living and build-to-rent, where supply constraints continue to drive investor interest. As we approach a potential shift in government policy and economic strategy, real estate stakeholders should remain agile."

He added: "If rates continue to fall towards 3.5% by year-end, as some predict, this could fuel a more sustained recovery in transaction volumes and investment flows. However, uncertainty remains, and prudent financial planning will be key as the market navigates this transition."

The Bank's predications of weaker economic growth will be less welcome to UK business, with the institution forecasting the economy will now grow by 0.75% this year, reducing from a 1.5% predication made in November.

But Bailey said the Bank expected gross domestic product growth to pick up from the middle of the year and predicted similar growth rates for 2026 and 2027 as it did in November. "There is considerable uncertainty over the extent to which this weakness in GDP should be ascribed to demand or to supply, and so what that weakness means for inflation," he added.

UK Chancellor Rachel Reeves said in a post on social media platform X, formerly Twitter, that the government was continuing to prioritise economic growth, saying: "The interest rate cut will help ease cost of living pressures, but I am still not satisfied with the growth rate.

"That’s why we are going further and faster for growth, taking on the blockers and ripping up unnecessary regulatory barriers, to get more money in people's pockets."

Marcus Phayre-Mudge, fund manager at TR Property Investment Trust argued a "little bit of economic malaise" could work in the favour of property investors.

"While job losses and business struggles are never welcome, cautious central bankers can be a welcome tailwind for (listed) property companies and REITs. Slower growth tends to bring lower interest rates, creating a much more supportive backdrop for this leveraged asset class.

"Even in this more measured rate-cutting cycle, the signs are pointing to a REIT renaissance this year—with many high-quality companies trading at significant discounts to their underlying asset values.

"The supply of prime buildings across the UK and Europe remains exceptionally tight, thanks to years of stalled development in the wake of the pandemic and reduced lending to speculative construction. Put simply, strong economic growth and booming demand does drive rental growth but the crucial ingredient is the scarcity of supply which does the heavy lifting, alongside a welcome assist from this latest round of rate cuts."

The UK follows mainland Europe in dropping interest rates, with the European Central Bank cutting its deposit rate to 2.75% in its first meeting of the year last month. Its quarter-point cut was in line with expectations, having reduced its rate four times last year.

In the US, the Federal Reserve chose to hold its interest rate after three successive cuts since September, following new policies introduced by President Trump. The rate stays fixed within the range of 4.25% and 4.5%. Click here for a deeper analysis of the rates decision in the US.