Mortgage debtors might take pleasure in decrease charges because of falling inflation and rising unemployment

Mortgage borrowers could start to see fixed rate deals fall as the latest data on the UK economy released today suggests further cuts to the Bank of England base rate could be on the cards. 

Inflation is falling, but unemployment is rising, both of which could boost chances of further interest rate cuts, data released by the Office for National Statistics (ONS) shows.

Inflation fell by 0.5 per cent in January, according to the ONS.  It rose by 3 per cent in the 12 months to January, but that’s down from 3.4 per cent in the year to December 2025.

The Office for Budget Responsibility (OBR) is forecasting that inflation will return to the Bank of England’s 2 per cent target over the coming months.

With inflation seemingly on a downward path, it could encourage the Bank of England to cut interest rates more aggressively this year. 

Market forecasts generally see interest rates falling from 3.75 per cent to either 3.5 and 3.25 per cent by the end of the year. However, some analysts reckon they could reach 3 per cent.

Inflation watch: Inflation has dropped to 3% and continues to hover above the bank of England’s 2% target

If money markets start pricing in additional interest rate cuts, this could feed through into mortgage pricing.

David Hollingworth, associate director at broker L&C Mortgages says the drop in inflation 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.’

Shaun Sturgess, director at Sturgess Mortgage Solutions, is expecting a busy Spring thanks to inflation falling.

‘Swap rates, which fixed rate mortgages are priced off, have already been falling and inflation dropping to 3 per cent should see them head even further south,’ added Sturgess.

‘That translates into lower mortgage rates for borrowers, which improves affordability and gives more people the scope to buy. 

‘We could be in for a very busy spring period for the property market and the chances of a rate cut in March have now been boosted significantly.’

But inflation isn’t the only thing that the central bank will be keeping a close eye on. 

Rising unemployment is also expected to encourage the Bank of England MPC members to favour cutting rates as it seeks to support the economy.

Yesterday, the ONS revealed that the rate of unemployment ticked up yet again reaching its highest level since 2021.

The unemployment rate for people aged 16 years and over was estimated at 5.2 per cent in October to December 2025.

Estimates for payrolled employees in the UK fell by 121,000 between December 2024 and December 2025, and decreased by 6,000 between November 2025 and December 2025.

The early estimate of payrolled employees for January 2026 fell by 134,000 (0.4 per cent) on the year, and by 11,000 on the month, to 30.3 million.

Babek Ismayil, chief executive at homebuying platform OneDome, said a rate cut is even more likely thanks to the unemployment data.

‘If there’s one silver lining to this underwhelming data, it’s that it makes a rate cut at the next Bank of England meeting in March more likely,’ said Ismayil.

He adds: ‘Of course, Wednesday’s inflation data will also be a key contributor to any rate cut. But all in all, this data does suggest a rate cut is coming in the spring.’