11 December 2025: Slash rates now, warns a top house builder

The Bank of England should slash interest rates to 3% immediately to promote growth. This is the view of the Executive Chairman of Berkeley Group, Rob Perrins. He believes that any feel-good factor within the economy has evaporated due to the measures introduced by Rachel Reeves in the two budgets she has delivered since the Labour Party came to power.

The veteran house builder, who has run the firm since 2009, also warned that taxes and regulations are holding back the development of new homes in the UK. He said sales have been subdued due to speculation ahead of the Budget, in which Rachel Reeves hiked taxes on landlords and homes worth more than £2 million.

Perrins said the company faced several ‘headwinds’.

The comments came two weeks after the Chancellor’s second tax-raising Budget and a week before the Bank of England announces its last interest rate decision of the year.

The Bank of England is widely expected to follow the Federal Reserve in cutting interest rates when the Monetary Policy Committee meets on December 19th. But to jump-start the economy, Perrins believes a cut to 3% is needed. He feels similar to MPC member Alan Taylor, who recently commented that a series of 25 basis-point cuts takes too long to filter through to the economy and that a much larger cut is necessary.

It is unlikely that Andrew Bailey and the permanent members of the committee would subscribe to this view for two reasons: first, it would promote a sense of panic in the market, and second, they would be ceding any semblance of control they have built over inflation.

Markets are pricing in a 91% chance of a rate cut next week, with savers being urged to take advantage of current deposit rates, since they are likely to fall and continue falling in the New Year as both inflation and GDP head south.

The pound rallied strongly after the Fed cut rates by 25 basis points, even though Jerome Powell did not appear keen to confirm another cut anytime soon. Sterling made a high of 1.3388 and closed at 1.3385. This was its highest close since October 22nd.

As expected, the Federal Reserve voted to cut the Fed Funds target rate by 25 basis points at the conclusion of its meeting yesterday.

Fed Chairman Jerome Powell told reporters that “We’re well positioned to wait and see how the economy evolves from here.” This is a fairly stock comment from Powell, who always tries hard not to raise markets' hopes that this is part of a series of rate cuts.

For the first time since 2019, one quarter of the rate-setting committee voted against yesterday’s cut, two members wanted to keep rates unchanged, while newbie Stephen Miran once again called for a bigger reduction.

The Fed is rarely so split, but things are different this year. Rate-setting decisions haven’t been unanimous since June, as committee members disagree over which beast is currently hairier, inflation or jobs. Lower interest rates tend to boost employment while risking inflation, whereas higher interest rates tend to tamp down consumer prices while threatening harm to the labour market.

Since the last meeting and the resolution of the Federal shutdown, employment concerns have got the better of inflation fears.

Fed officials project one rate cut next year, but it doesn’t pay to second-guess the FOMC, especially since President Trump is close to naming a new Fed Chair to succeed Powell after his term expires in May. The likely nominee, Kevin Hassett, will come into the role tasked with overseeing a series of rate cuts, although he will need to convince several sceptics on the FOMC.

The continuation of the K-shaped economy may drive consumer confidence lower in the coming months. Increased inequality and labour market disparities may lead consumers to wait and see what effect the new Fed Chairman will have on interest rates in the short term. A lot will also depend on whether the AI-driven equity market rally is really a bubble and, if so, whether that bubble bursts.

The dollar index fell to a low of 98.59 in the immediate aftermath of the Fed decision on interest rates, even though Powell’s press conference could be seen as delivering a hawkish cut, since he was reticent about when the next cut would happen. The index ended the day near its low at 98.64.

The European Central Bank's new forecasts next week will probably feature a more optimistic outlook for economic growth, according to its president, Christine Lagarde.

The Eurozone has been more resilient than feared to the US tariff onslaught, Ms Lagarde told the Financial Times. She highlighted that the European Union hadn't retaliated to those measures, while the euro hasn't depreciated and the labour market remained robust.

Policymakers have grown increasingly convinced that borrowing costs can be left unchanged for the foreseeable future, thanks in part to the economy's resilience. Gross domestic product grew 0.3% in the third quarter, more than initially estimated.

Lithuanian central-bank chief Gediminas Simkus said that he doesn't see a need for further cuts, a shift from earlier comments that signal increasing conviction inflation isn't going to drop much below the ECB's goal.

Executive board member Isabel Schnabel said she is comfortable with investor bets on the next move being a hike.

Schnabel, who, despite saying she is ready to step into Lagarde’s shoes in the summer of 2027 when Lagarde’s term as ECB president ends, is still an outsider given her penchant for making exceptionally hawkish statements, which can often be at odds with the majority of her colleagues' views.

While naming a technocrat as President is not outside the realms of ECB demands, experience of leading a Eurozone Central Bank is a prerequisite, which is why Klaas Knot is the current favourite.

Portugal has quietly turned into the eurozone’s star performer, topping The Economist's 2025 ranking of global economies.

It earned this distinction based on inflation, gross domestic product, jobs, and market data from the world’s 36 wealthiest countries.

The southwestern European economy was described as being "as sweet as a pastel de nata", a reference to the staple Portuguese custard-based pastry.

Portugal was followed by Ireland and Israel. Spain, last year’s winner, now shares fourth place with Colombia, followed by the Czech Republic and Greece, underscoring the broader trend of accelerating growth in Southern Europe.

Other members of the eurozone that faced difficulties in the 2010s, including Greece (the highest ranked in 2022 and 2023) and Spain, are also among the frontrunners.

Central and Eastern European countries such as Slovakia, Finland, and Estonia are at the bottom of the ranking.

The Euro rallied yesterday as the Fed cut rates, while the ECB is likely to either hold rates at their current level for some time or follow Ms Schnabel's views and see its next rate move as a hike. The single currency reached a high of 1.1699 and closed at 1.1694. There are rumoured to be significant sell orders around the 1.1720 level, so it remains to be seen if this rally fizzles out at around its current level, given traders' reticence to drive the market to new highs at this time of year.

Have a great day!