Rising Odds of March Interest Rate Cut as Inflation Falls

The chances of a UK interest rate cut in March are increasing after the latest inflation data showed continued cooling across the economy.

According to the latest figures from the Office for National Statistics, inflation dropped to 3% in January, the lowest level seen since March 2025 and a significant move closer to the Bank of England’s target.

Financial markets are now estimating an 80–86% chance that the Bank of England will reduce the base rate at its next meeting in March.

The expected move would lower the base rate from 3.75% to 3.5%, following a period in which rates have steadily fallen from their peak of 5.25%.

The shift reflects growing confidence that monetary tightening has successfully slowed price growth.

What This Means for Borrowers

A potential rate cut could improve mortgage affordability and stimulate buyer confidence, particularly after a period of elevated borrowing costs. Lower base rates typically feed through to fixed and variable mortgage pricing over time, although the impact is not always immediate.

Implications for the Housing and Mortgage Market

A potential reduction in the base rate could have a positive effect on mortgage affordability.

Lower base rates generally influence lender pricing over time, supporting reductions in:

• Fixed-rate mortgage products
• Tracker and variable-rate mortgages
• Remortgage costs
• Buy-to-let financing conditions

Although lenders do not always pass on base rate changes immediately, competitive pressure within the mortgage market can help accelerate pricing adjustments.

Improved affordability may also support buyer confidence, particularly after a period where elevated borrowing costs limited purchasing power.

Economic Outlook for 2026

If inflation continues its downward path, further monetary easing could follow later in 2026.

Many economists expect inflation to move below the 2% target over the medium term, supported by slower consumer price growth, tighter labour market conditions and moderating demand.

Summary

• Inflation has fallen to 3%, strengthening expectations of monetary easing.
• Markets are pricing in a high probability of a March rate cut.
• Borrowing costs may gradually improve if the downward inflation trend continues.
• Housing market sentiment could benefit from improved affordability.

Source: Mortgages First/Office for National Statistics; Bank of England market expectations.