Mortgage rates could fall after inflation rate drop

The latest data from the Office for National Statistics (ONS) shows falling petrol prices and slower food inflation helped push prices down. On a monthly basis, prices actually fell by 0.5%.

That’s good news for households – but what does it really mean for your mortgage, savings and bills?

Why inflation fell

Petrol prices dropped by 3.1p per litre between December and January, while food price inflation slowed from 4.5% to 3.6%. Airfares also fell after December’s seasonal spike.

ONS chief economist Grant Fitzner said: “Airfares were another downward driver this month… Lower food prices also helped push the rate down, particularly for bread & cereals and meat. These were partially offset by the cost of hotel stays and takeaways.”

Core inflation – which strips out volatile items like energy and food – also edged lower to 3.1%.

What it means for mortgages

Economists say the drop strengthens the case for the Bank of England to cut interest rates at its next meeting on 19 March.

Thomas Pugh, chief economist at RSM UK, said: “The sharp drop in inflation in January all but nails on a rate cut next month… This should take inflation to 2% in April, which will set the stage for another interest rate cut in the summer.”

The Bank’s base rate currently sits at 3.75%. If it falls, mortgage rates could follow.

Ben Thompson, Director of Home Moving Strategy at Mortgage Advice Bureau, called the figures: “The ‘green light’ the mortgage market has been waiting for.”

He added: “Lower inflation also makes lender stress tests easier to pass, handing first-time buyers back the borrowing power that has felt out of their grasp for years.”

Good news for borrowers

Riz Malik, Director at R3 Wealth, said: “Falling inflation with rising unemployment should give the Bank of England the confidence to continue their rate cutting cycle. Good news for borrowers – not so good news for savers.”

However, some experts are urging caution.

Rohit Kohli, Director at The Mortgage Stop, warned: “Inflation is cooling, but so is the wider economy… The question now is whether a cautious 0.25% move is enough given the pace of economic slowdown.”

For homeowners coming off fixed-rate deals, this could mean slightly lower remortgage costs in the coming months — but rates are unlikely to return to the ultra-low levels seen before 2022.

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What it means for savers

When inflation falls, savings earn more in “real terms” — meaning your cash holds its value better.

Philly Ponniah, Chartered Wealth Manager at Philly Financial, said: “This is the first bit of good news we’ve had in a while… While 3% still means things are getting more expensive, it is happening more slowly than before.”

But there’s a catch.

If inflation keeps easing, the Bank of England may cut rates — and savings rates could start to fall too.

Sally Conway, Savings Expert at Shawbrook Bank, warned: “For savers, this could be a last chance to secure today’s stronger returns.”

She added that many households are still missing out: “Moneyfacts data shows the average rate among some of the largest high street providers is just 1.19%, meaning households could be missing out on hundreds of pounds a year.”

Ben Mitchell, Director of Savings at Chetwood Bank, said: “Large sums still sit in accounts paying minimal interest, and even a small gap in rate can make a noticeable difference over time.”

What to consider now

If you’re a saver:

• Check your current rate
• Compare providers
• Consider fixing if you want certainty
• Look at moving money from low-paying accounts

If you’re a borrower:

• Watch for new mortgage deals in the coming weeks
• Consider speaking to a broker before rates shift
• Factor in timing if your fix ends soon

When will mortgage rates drop?

While inflation is falling, the wider economy remains fragile. Unemployment has risen to 5.2%, and growth was flat in the final quarter of last year.

Jonathan Moyes, Head of Investment Research at Wealth Club, said: “With a deteriorating labour market, weak wages, weak economic growth, and no ugly surprises on inflation, it is likely we will see our first rate cut of 2026.”

For households, that means cautious optimism.

Mortgage borrowers could soon see relief. Savers may need to act fast.

And while prices are still rising, they’re doing so more slowly – giving shoppers, for the first time in months, a little more breathing room.