Case for March base rate cut improves
UK inflation slowed to 3% in the 12 months to January, according to the latest figures from the Office for National Statistics, easing back from 3.4% in December and edging closer to the Bank of England’s 2% target. The move had largely been priced in by markets and anticipated by economists, but it still marks an important step in the disinflation story – and one with clear implications for mortgage borrowers, savers and property investors.
A clearer path towards base rate cuts
For advisers and borrowers alike, the key question is what this latest reading means for Bank Rate. The downward shift in January will reinforce expectations that the next move is more likely to be a cut than a hike, particularly against a backdrop of a softening labour market.
David Hollingworth, associate director at L&C Mortgages, said the figure will reassure those hoping that inflation is now sustainably moving in the right direction.
“The rate of inflation was widely expected to take a sharp fall in January, after the larger than anticipated rise in December. 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 rose again yesterday. 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.
“That should bring good news for mortgage borrowers. With another two cuts to base rate now looking more likely, there should be favourable market movement to help mortgage lenders improve their rates.
“Fixed rates had been edging higher in recent weeks, but we’ve seen those rises steady and some lenders cutting rates back, as sentiment around the rate outlook has improved. Today’s 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.”
For brokers, the message is that while volatility has not disappeared, the broader trend in pricing may now be back towards gradual improvement, particularly if incoming data continues to support the case for easier monetary policy.
Fixed rates, funding costs and borrower sentiment
In the early weeks of the year, swap rates and funding costs had pushed some lenders to nudge fixed-rate products higher, creating an uneasy sense that the mini price war seen in late 2024 might be running out of steam. The latest inflation print, combined with a perception that the MPC is edging closer to cutting, could stabilise that shift and reintroduce some competitive momentum.
For remortgagers confronting the end of ultra-low fixes, even modest reductions in pricing can be meaningful in affordability terms. Advisers will want to use the latest data as an opportunity to revisit client plans, particularly for those sitting on their lender’s revert rate or delaying a decision in the hope of certainty on the rate path.
At the same time, affordability tests remain tighter than in the pre‑inflation era, and real household budgets are still under pressure. Lower inflation helps, but it does not reset the clock to 2021. That means clear communication with clients about both opportunities and constraints remains essential.
Inflation and savers: from headline to “real” returns
While much of the industry’s attention focuses on borrowing costs, a 3% inflation rate also has major implications for savers. Lower inflation changes the real return on cash – and for those with substantial balances, the impact over several years can be significant.
Ben Mitchell, director of savings at Chetwood Bank, stressed that the latest data should act as a wake‑up call for households to reassess whether they are truly making their money work.
“CPI day is often treated as a headline about prices, but for savers it’s really about value. When inflation changes, it alters the real return people earn on their cash, and that can make a massive difference to households in the long term.
“Over the past few years, many households have become far more engaged with their savings as rates have improved. The latest figures are a useful prompt to check whether that engagement has translated into action. Large sums still sit in accounts paying minimal interest, and even a small gap in rate can make a noticeable difference over time.
“In the current environment, the fundamentals matter: understand what your money is earning, compare providers rather than defaulting to your main bank, and think carefully about the balance between access and return. Inflation may be easing compared to previous highs, but it remains a factor in financial planning – and savers who review their position regularly are best placed to protect the real value of their money.”
For advisers operating across mortgages and broader financial planning, this is a timely reminder that client conversations should not end at the mortgage offer. As inflation falls, the relative attractiveness of different savings vehicles, from easy‑access accounts through to fixed‑term deposits and alternative products, will continue to shift.
Buy-to-let and overseas interest: a confidence boost
The latest fall in inflation also carries weight for property investors, particularly in the buy‑to‑let space and among expat or overseas buyers. A more benign inflation outlook, coupled with the prospect of lower borrowing costs, can act as a powerful confidence signal.
Martin Sims, distribution director at Molo Finance, said the move towards the 2% target strengthens the case for further easing and is already reflected in renewed investor appetite.
"A further step down in inflation towards 2% strengthens the case for at least one more Base Rate cut this year, which would be positive news for landlords and residential buyers, and provide a renewed boost of confidence to the property market.
"We are already seeing renewed interest in UK property from overseas investors and Hamptons has reported that one in five newly incorporated buy-to-let companies in 2025 is owned by non-UK nationals, up from 13% in 2016. Company formations are running 8% ahead of 2024’s total, with around 67,000 expected by year end and, of those, roughly 13,500 will be owned at least in part by non-UK nationals.
"For expat investors, a clear move back to target inflation will signal greater economic stability. The UK’s deep rental market and long history of recovery continue to support its reputation as a relative safe haven. Lower inflation can ease pressure on tenants’ household bills, which supports rental payments and overall portfolio performance. It can also lead to sharper product pricing and more workable stress testing.
"If inflation settles at 2%, it is likely to spur further activity in buy to let. Investors who have been waiting on the side lines may see this as the point to refinance, expand or enter the market with a clearer view on rates."
For brokers focused on landlords and professional investors, this backdrop suggests a potentially busier second half of the year if inflation continues to trend lower. Stress tests may become less restrictive, product innovation could accelerate and overseas buyers – particularly those with a long‑term income view – may see the UK as increasingly compelling again.
What comes next for the mortgage market?
A 3% inflation rate is not mission accomplished – it remains above the Bank’s 2% goal, and policymakers will want to be confident that underlying price pressures are contained before pivoting decisively on rates. However, for the mortgage and housing market, the direction of travel is what matters most.
If subsequent releases confirm that inflation is on a sustainable glide path towards target, the industry can expect more stable, and potentially lower, funding costs, improving sentiment among both homebuyers and landlords. In the meantime, brokers have an opportunity to use the latest data to re‑engage with clients, stress‑test different scenarios and ensure borrowers and savers alike are positioned for what could be a very different rate environment over the coming year.
