At its latest meeting on Thursday (6 February), the Bank of England’s (BoE) rate-setting unit cut its benchmark interest rate to 4.5%. The expected move allowed UK shares to cling on to some solid daily gains.

While a 25-basis-point reduction was expected, the split across the Monetary Policy Committee (MPC) raised eyebrows. Seven of the nine members voted for the 0.25% cut. But two — including ‘super hawk’ Catherine Mann — wanted an even-larger cut, to 4.25%.

Why is this significant? Well Mann has regularly voted against cuts in prior meetings, and was tipped by some to do so again today. Thursday’s change of tack suggests a change in thinking, perhaps across the entire MPC, that could lead to swingeing rate cuts in the months ahead.

Share price boost

A sharper-than-expected fall in interest rates would provide a big boost to the UK share complex on the whole. It could potentially turbocharge consumer and business spending, and bring down borrowing costs for British companies.

A strong and sustained drop in interest rates isn’t guaranteed, of course. Sticky inflation — which could be exacerbated by trade wars following US President Trump’s return — may complicate future BoE rate decisions.

But what if interest rates do fall substantially over the short-to-medium term? Here are two UK stocks I think could rise especially strongly and are worth considering.

Berkeley

Housebuilders like Berkeley (LSE:BKG) may be the most obvious beneficiaries of sharp interest rate cuts. The knock-on effect that rate reductons could have on homes demand by boosting buyer affordability may be substantial.

In this scenario, Berkeley shares could rise especially strongly in value. With a forward price-to-earnings (P/E) ratio of 10.6 times, the FTSE 100 builder is much cheaper than its blue-chip peers, which in turn could provide ample scope for price gains.

The housebuilder is, like its peers, already reaping the rewards of recent rate cuts (it said it enjoyed a “a slight [demand] uptick“ in the weeks prior to early December’s latest trading update). This could well continue.

That said, cost inflation remains an issue across the construction industry that could dampen profits. In addition, the benefit of interest rate cuts to Berkeley’s top line could be offset by a prolonged downturn for the UK economy.

But on balance, I think things could be looking up for the Footsie firm.

Assura

Real estate investment trusts (REITs) such as Assura (LSE:AGR) could also turn sharply higher if interest rates fall sharply.

Lower rates can have two significant benefits for these property stocks’ profits. First of all, they can bring down borrowing costs by giving firms an opportunity to find better refinancing deals.

This in turn can also make new developments and acquisitions for growth more financially viable.

Secondly, interest rate cuts could also give Assura’s earnings a boost by driving net asset values (NAVs) higher. The company’s portfolio valuation dropped 1% to £2.7bn in the last financial year (to March 2024), reflecting the impact of Bank of England rate rises. On a like-for-like basis its asset values reversed 4%.

NAVs have improved more recently, and further interest rate cuts would fuel this momentum.

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Bear in mind, though, that future changes to NHS policy could have good or bad implications for the REIT’s profits, regardless of interest rate changes.