Inflation fell to its lowest level in nearly a year in January according to the Office for National Statistics, boosting hopes that we could see a base rate cut as soon as March.
The Consumer Prices Index measure of inflation eased to 3% in January, down from 3.4% in the year to December, and the weakest reading since March 2025. The decline was driven by falling food prices, air fares and fuel costs, with petrol and diesel prices falling by 2.2% over the year.
Core inflation, which strips out the more volatile elements such as energy, food and alcohol, slowed to 3.1% in the year to January, down from 3.2% in December, and the lowest level since 2021.
David Hollingworth, associate director at L&C Mortgages said, “This will further the hope that inflation is now on the downward path, to take it closer to the Bank of England’s target.
“It will do nothing to derail the chance of another base rate cut to come as soon as next month, especially after the rate of unemployment has risen again. The tight 5-4 vote to hold base rate this month, with the minority preferring a cut, has also strengthened the market’s belief that base rate will be cut further.”
What inflation means for your mortgage
If falling inflation does result in further base rate reductions, this is good news for mortgage borrowers, especially as fixed rates have been edging higher in recent weeks.
Improving sentiment surrounding the rate outlook is likely to see more lenders start to trim rates back again in coming weeks. Mr Hollingworth said: “The latest inflation news should help firm that up and if lender funding costs continue to ease, we could see more cuts to unwind some of the recent hikes.”
The Bank of England’s Monetary Policy committee next meets on March 19, and if rates are cut, this could help bring inflation nearer to the government’s 2% target, potentially leading to a further reduction this summer. However, there are no guarantees, so if you’re looking for a mortgage, it’s worth seeking professional advice from a broker on the best options to suit your needs.
