Inflation dropped by more than expected in the 12 months to November, according to latest Office for National Statistics data, helped by lower clothing and food prices.
The Consumer Prices Index measure of inflation fell to 3.2%, down from 3.6% in the year to October. This was a bigger drop than analysts expected, and it’s a far cry from 2022, when inflation peaked at more than 11%. Despite prices now rising at a much slower rate, inflation remains above the government’s 2% target.
Inflation is effectively the rate at which the cost of the goods and services we use, such as energy and food, increases over time. When the inflation rate falls, it doesn’t mean that prices are going down - rather, it means that prices are rising more slowly than before. Lower inflation can increase the likelihood that interest rates will remain lower, which is welcome news for homeowners with mortgages.
Swap rates, which are the rates at which lenders borrow funds on the wholesale market, influence fixed mortgage rates by reflecting market expectations for future interest rates. These rates have eased in recent weeks, suggesting that markets believe we may see further base-rate cuts next year, following December’s quarter-percentage-point reduction, which lowered the base rate from 4% to 3.75%.
However, it’s important to remember that there are no guarantees. The Bank of England’s Monetary Policy Committee will review a wide range of economic indicators, including inflation, wage growth and employment data, before deciding whether to cut rates further in 2026.
This means that if you spot a mortgage deal you like, it may be worth securing it sooner rather than later. You can usually secure your next mortgage rate between three and six months before it needs to start, so if rates do move down again, you’ll still have time to switch to a cheaper deal if one becomes available.
