UK Inflation Drops to 3%: Spring 2026 Rate Cut Looking More Likely

Inflation Falls to Lowest Level in a Year

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 Bank of England base rate cut as soon as March.

The Consumer Prices Index (CPI) measure of inflation eased to 3% in January, down from 3.4% in December, representing the weakest reading since March 2025. The decline was primarily driven by falling food prices, lower air fares, and reduced fuel costs, with petrol and diesel prices falling 2.2% over the year.

Core inflation, which strips out more volatile elements such as energy, food, and alcohol, slowed to 3.1% in January, down from 3.2% in December — the lowest level since 2021.

Growing Expectations of a Spring Rate Cut

This latest inflation data will further the hope that inflation is now firmly on a downward path towards the Bank of England's 2% target. It does nothing to derail the prospect of another base rate cut as soon as next month.

The tight 5-4 vote by the Monetary Policy Committee to hold the base rate in February — with the minority preferring an immediate cut — has already strengthened market expectations that rates will be reduced further. If unemployment continues to rise alongside cooling inflation, the case for a cut becomes even stronger.

However, some analysts are questioning whether there might be only one rate cut this year. If inflation proves more persistent than expected, particularly if UK wage growth remains strong, policymakers may delay further reductions.

What This Means for Your Mortgage

If falling inflation does lead to further base rate reductions, this is good news for mortgage borrowers — especially as fixed rates have been edging higher in recent weeks due to rising swap rates.

Improving sentiment around the rate outlook is likely to see more lenders start trimming rates again in the coming weeks. 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 increases.

The Bank of England's Monetary Policy Committee next meets on 19th March. If rates are cut, this could help bring inflation nearer to the 2% target and potentially set the stage for a further reduction over the summer.

However, there are no guarantees, so if you're looking for a mortgage, it's worth speaking to a qualified broker about the best options for your situation. Our advisors offer fee-free guidance and can help you secure a competitive rate.