Markets are betting on a March cut after January CPI drops from last month’s 3.4% to 3% and cost pressures ease.
19th Feb 20260 801 3 minutes read Simon Cairnes
Inflation fell to a 10-month low in January, prompting traders to raise expectations that the Bank of England could cut the base rate at its next meeting on 19 March.
The Consumer Prices Index dropped to 3% from 3.4% in December, according to the Office for National Statistics, which is its lowest level since March last year, when inflation was 2.6%.
costs easingThe ONS said the fall was driven by easing transport and food costs. Air fares reversed December’s spike, and food price rises slowed. Petrol prices dropped by 3.1p per litre between December 2025 and January 2026, and food inflation eased to 3.6% from 4.5% – the lowest level in nine months.
Markets are now pricing in an 84% chance that the Bank will reduce the base rate from 3.75% to 3.5% next month.
Today’s inflation data will likely prompt the Bank of England to lower interest rates next month.”
Yael Selfin, Chief Economist at KPMG UK, told the Telegraph that the decline in inflation “paves the path” for a cut, adding: “Today’s inflation data will likely prompt the Bank of England to lower interest rates next month. The MPC will welcome the broad-based fall in inflation, with both headline and underlying measures of inflation easing.”
However, not all experts agree. Some economists expect policymakers to wait, with Ellie Henderson of Investec warning: “Inflation at 3% is still some way above the Bank of England’s 2% target, meaning that caution should still prevail when it comes to loosening policy further.”
Kallum Pickering, Chief Economist at Peel Hunt, on the other hand, believes the Bank should have cut sooner: “The clear risk now is that the bank has fallen behind the curve and will need to play catch-up.”
Industry reaction
Nathan Emerson, Chief Executive, Properthmark
Nathan Emerson, CEO of Propertymark:
“A fall in inflation is a welcome step in easing cost-of-living pressures and will help improve confidence among consumers and businesses. Lower inflation strengthens the case for a more stable interest rate environment, which is crucial for both mortgage affordability and investment in housing.
“While challenges remain, a downward trend should support market activity and provide some relief for renters and homebuyers who have faced sustained financial pressures over recent years.”
Hina Bhudia, Partner, Knight Frank Finance:
Hina Bhudia, Partner, Knight Frank
“The combination of softer inflation data this morning and weak jobs figures yesterday raises the likelihood of two rate cuts this year. Leading fixed rates have remained steady in the past four weeks, and there has been considerable jostling for position in the middle of the market.
We think this week’s figures will pave the way for fixed rates to ease further in the coming month, leading up to the next interest rate decision on March 19th. Any falls will be incremental, but they will have a meaningful impact on sentiment. Supply is high, and buyers have plenty of choice. That, combined with easing mortgage rates, could tee up a busy spring in the housing market.”
John Phillips, CEO, Just Mortgages and Spicerhaart
John Phillips, CEO of Just Mortgages and Spicerhaart:
“It’s positive to see inflation rebound from its seasonal blip and return to its downward trajectory. While still higher than the 2% target, inflation seems to be performing as the central bank expects.
“All eyes are now on next month’s MPC decision as the central bank responds to this news, as well as the recent rise in unemployment and sluggish economic growth. While opinion is still split on how far cuts will go this year, there is increasing optimism around a cut in March, which would be great news for borrowers.
“January provided a strong start to the year, and that has continued into February with robust buyer registrations and increasing demand for both valuations and mortgage appointments. Even with half-term disruptions, we’re looking at a really positive month as buyers get plans back on track – buoyed by high levels of product choice and continued innovation.
“As this momentum continues, brokers play a critical role in demonstrating to new and potential borrowers what the market has to offer, leveraging their deep knowledge and partnerships with a broad range of lenders to help clients achieve their ambitions.”
Jonathan Samuels, CEO, Octane Capital
Jonathan Samuels, CEO of Octane Capital:
“Today’s inflation data shows a welcome step back in price pressures, with headline CPI easing to around 3.0% in January. This suggests that the temporary uptick seen at the end of 2025 has likely subsided and that disinflation continues to move in the right direction.
Of course, with inflation not yet at target and underlying pressures still evident, a measured approach from the Bank of England remains essential and, whilst Markets may be pricing in cuts, it would be wise to maintain flexibility until the path back to sustained 2% inflation is clear.”
Tagsbase rate inflation interest rates 19th Feb 20260 801 3 minutes read Simon Cairnes Share Facebook X LinkedIn Share via Email