Today the Office for National Statistics confirmed that UK inflation has fallen to 3.0 per cent in the year to January 2026, the lowest rate seen in about ten months and down from 3.4 per cent in December. This brings good news for households and businesses dealing with high costs, particularly as it follows a period of elevated inflation and cost-of-living pressures.
Likely reaction from Bank of England
Inflation is measured by the Consumer Prices Index and it remains above the Bank of England’s 2 per cent target, but the recent decline, driven by slower increases in food and petrol prices, has strengthened market expectations that monetary policy could soon ease.
For businesses and their advisers one of the key questions this week is how this will affect interest rates. The Bank Rate currently stands at 3.75 per cent, where it was held at the last Monetary Policy Committee meeting. At that meeting policymakers emphasised the need to be confident inflation stays near target before cutting, but they also pointed to the likelihood of further reductions this year if data continue in the right direction
Will interest rates fall?
With inflation now on a clearer downward path and officials forecasting a return to the 2 per cent target by spring, futures markets are pricing in a strong chance of a rate cut at the Bank of England’s next decision in March. Many economists expect a 25 basis point reduction, potentially taking the Bank Rate down to around 3.5 per cent, and some see scope for further cuts later in the year if price pressures continue to ease.
For clients with borrowing or refinancing plans this shift could mean slightly cheaper credit costs and a more supportive environment for investment decisions in the months ahead. If inflation continues to moderate as expected, both households and businesses may start to benefit from lower interest rate settings before long.