GDP growth beat is more than welcome — but global uncertainty, tariff wars & financial market chaos is the bigger story for investors.

The UK economy grew by 0.5% in February 2025 — its strongest monthly rise in nearly a year, smashing consensus estimates of 0.1% with gains across manufacturing, construction, and services.

It’s an undeniably positive sign of domestic resilience, suggesting that some sectors are acting proactively ahead of trade war-induced uncertainty; that consumers, buoyed by real wage growth, are still spending; and that businesses, broadly speaking, are simply getting on with things – despite the Autumn Budget.

For property investors, however, it represents just one piece of a much more complex puzzle — and investment decisions should not be rushed based on this datapoint alone, particularly given the rising geopolitical and macroeconomic uncertainty.

UK Swap Markets Caught in the Crossfire

While the recent GDP beat may offer some reassurance — and provide the Chancellor with a brief reprieve — it remains a single, backward-looking datapoint. In fact, viewed in broader context, monthly GDP has fallen more often than it has risen over the past nine months.

And with the UK exposed — albeit less than some — to the growing threat of a trade war, long-term borrowing costs are spiking. Yields on 30-year gilts briefly touched 5.63% this week — the highest level since 1998 — after being swept up in a global bond sell-off triggered by US tariffs and escalating tensions with China. Although they’ve since eased back to around 5.50%, that still places them at levels not seen in over 25 years.

The sell-off in 10-year gilts has been less extreme, but yields remain higher than they were in summer 2023 and autumn 2022. Elevated 30-year yields reflect market expectations of persistent long-term inflation and signal that today’s trade tensions could profoundly reshape global supply chains. Meanwhile, higher 10-year yields suggest growing investor concern about the medium-term impact on economic growth.

This week, the Bank of England was even forced to cancel a scheduled auction of long-dated gilts — a clear sign of mounting pressure in the market, and a stark reminder of the risks associated with locking in high-cost debt at a time when the UK economy is grappling with the threat of stagflation.

As LendInvest’s Chief Capital Officer and Managing Director of the Mortgages division, Hugo Davies noted this week:

“It looks like swap rates are going to get caught in the crossfire — between volatility in bond markets, where bond yields are effectively setting a de facto floor for swaps, and expectations of a falling Bank Base Rate, as reflected in market-implied SONIA pricing.

Ironically, both are being driven by the same backdrop: weaker global and domestic growth, and tightening fiscal conditions.

Bond markets are under pressure because investors expect governments to issue more debt as tax receipts decline — and they want to be compensated for heightened inflation and growth risks. Meanwhile, the Bank of England, aware of the limited fiscal headroom available to stimulate the economy, will likely explore all options in its monetary arsenal. That’s behind the sharp repricing of SONIA over recent months.

Market-implied pricing for the base rate at the next MPC meeting on 18 September has now fallen to 3.81% — nearly 75 basis points lower than the current base rate. At the start of the year, that would have seemed highly unlikely (pricing peaked at 4.35% in mid-January). It’s been a dramatic shift.

If swap rate beta versus the implied base rate path worsens — in other words, if bond yields begin exerting more influence — we’re likely to see a rise in the popularity of tracker mortgage products, particularly discounted options over 1-, 2-, or 5-year terms. These often come without early repayment penalties, which is key. At some point, swaps may catch up with the Base Rate, and in that context, fixed-rate products could once again look relatively attractive.

Time will tell which force wins the tug of war.”

Davies noted that this tension — between the Base Rate and bond yields — is already influencing how lenders price mortgages, or more accurately, how they’re not pricing them. Recent falls in swap rates haven’t been passed on as quickly as in previous cycles, with lenders wary of a potential correction. This is already shaping how investors are structuring finance for property deals in the months ahead.

What Investors Need to Consider

In today’s environment, long-term planning must be paired with short-term agility. Our key messages for property investors are:

Watch swap rates, not just bond yields

Gilt yields are influencing swap rates, but the relationship isn’t linear. Swaps have traded in a much tighter range than bond yields in recent weeks.

Reassess fixed versus tracker options

With heightened uncertainty, and the possibility of swaps catching up with the implied path for the Base Rate — or surprises such as a new UK free trade agreement or fresh volatility from the US — discounted tracker mortgages may offer better relative value and greater flexibility, especially for short-term or exit-driven strategies.

Stress-test your exits

Global market shocks can impact both property valuations and refinancing liquidity. Ensure your deals are resilient to delays, repricing, or a change in exit conditions.

In short, UK GDP is trending in the right direction — but global volatility is already affecting property finance conditions at home. Investors shouldn’t be spooked, but they must stay informed.

Keep your strategy flexible. Build in contingency. And follow the data that matters.