Inflation fall fuelling expectations of base rate cut in March

The Consumer Prices Index dropped 0.4 percentage points from December to January, from 3.4% to 3%, according to the Office for National Statistics. This is the lowest reported level since March 2025, when inflation was 2.6%, and has now shifted back onto the downward path that dominated much of the past 12 months.

With a larger-than-expected fall in inflation in January 2026, the expectation of both a cut in the base rate and a decrease in mortgage costs is on the horizon due to price pressures easing more quickly than was initially forecasted.

According to the ONS, easing transport costs and food costs are the primary factors contributing to the slowdown, with food inflation reducing from 4.6% to 3.6%, the lowest level in the past 9 months.

Yeal Selfin, Chief Economist at KPMG UK

Mortgage costs expected to follow the trend

'Swap rates', the rates at which banks will borrow money to be able to fund their mortgage lending service, reflect the expectations of the future direction of the base rate. When the market rate experiences a cut, the swap rate will typically fall, with cheaper fixed-rate deals then being rolled out.

Leading fixed rates have been holding steady recently, but there has been intensified competition between lenders in the middle of the market, as the expectation of a drop in the base rate to be announced on the 19th of March fuels the market.

What this means for investors

If the base rate continues to drop, borrowing rates will continue to improve, resulting in getting more for your money and being able to increase the amount that you're able to buy and take a bigger opportunity in the investment market. For those investors who have been waiting for another decrease, this is the time to start benefiting from the options available and explore your next investment opportunity.

Reach out to our expert team today to find our more about our available opportunities.