Inflation Falls to 10-Month Low: March Interest Rate Cut Now Likely

The Inflation Picture Clears

The Office for National Statistics reported that the Consumer Prices Index was 3% higher in January than a year earlier, falling from 3.4% in December. The decline was in line with analysts' expectations and represents the sharpest single-month drop in recent months.

Food prices made the largest downward contribution, with annual food inflation falling from 4.5% to 3.6%. Transport costs also declined, providing relief to household budgets that have been stretched by years of elevated inflation.

When the Bank of England held its base rate at 3.75% at its February meeting, it indicated it expected inflation to be back at the 2% target by April. This latest data suggests that forecast is on track, giving policymakers confidence to resume cutting rates.

March Rate Cut Now Widely Expected

The sharp fall in inflation has transformed market expectations for the Bank of England's next move. Following the February meeting, where the Monetary Policy Committee voted 5-4 to hold rates, many economists had been uncertain about the timing of the next cut.

The improved inflation picture has also prompted some economists to revise their forecasts upward. Katharine Neiss, chief European economist at PGIM, now expects rate cuts in March, April and June, bringing the base rate to 3% by summer.

What This Means for Mortgage Rates

The prospect of a March rate cut is already influencing mortgage pricing. Lenders typically price future rate cuts into their fixed-rate products ahead of time, which explains why we've seen some mortgage rates edge down in recent weeks despite the Bank holding rates in February.

If the Bank does cut rates in March as expected, we're likely to see:

• Further reductions in fixed mortgage rates, particularly on 2-year and 5-year products
• Tracker mortgage rates falling immediately in line with the base rate cut
• Increased competition among lenders trying to capture their share of the 1.8 million borrowers remortgaging in 2026

However, borrowers should manage expectations. Much of the anticipated March cut is already priced into current rates, meaning the immediate impact may be modest. The bigger opportunity lies in securing rates now before any market volatility causes lenders to adjust pricing.

The Broader Economic Context

The falling inflation comes at a crucial time for the UK economy. Growth has been sluggish, unemployment is rising, and wage growth is moderating - all factors that give the Bank of England more room to cut rates without risking an inflation resurgence.

Bank of England Governor Andrew Bailey has said he expects to see "quite a sharp drop in inflation over coming months" and that he sees "scope for some further easing of policy." Importantly, he added that this doesn't mean the Bank will cut at any particular meeting, signalling the data-dependent approach policymakers are taking.

Looking Ahead: What to Expect

While a March cut now looks highly likely, the pace of further reductions remains uncertain. Most economists expect one to three cuts during 2026, potentially bringing the base rate to somewhere between 3% and 3.5% by year end.

The key factors that will determine the pace of cuts include:

• Whether inflation continues its downward trajectory and reaches the 2% target as forecast
• The strength of wage growth and whether services inflation continues to moderate
• Global economic developments, including US tariff policies and European economic conditions

For Northern Ireland borrowers, the improving outlook means more competitive mortgage options and potentially lower monthly payments for those remortgaging or buying this year.

What Should Borrowers Do Now?

With a March rate cut looking increasingly likely and further cuts possible throughout 2026, borrowers approaching the end of their fixed-rate deals should be taking action now.

Richard from Mortgages Northern Ireland commented: "The improving inflation picture is excellent news for borrowers, but it doesn't mean you should wait to secure a rate. Lenders often price in expected cuts weeks before they happen, and the best deals can disappear quickly when demand increases."

He added: "If your fixed rate is ending in the next six months, now is the time to explore your options. Even if rates fall further after you lock in a deal, many lenders offer rate check services that allow you to switch to a better rate before completion."

If you're approaching the end of your fixed-rate mortgage or looking to take advantage of improving rates, our team at Mortgages Northern Ireland can help you navigate the market and secure the best deal for your circumstances. With a likely rate cut on the horizon, now is an excellent time to review your options. Call us on 0330 043 0327 or visit our website for a free, no-obligation consultation.