Inflation falls to 3% in January as fuel and food prices ease

“UK inflation easing back to 3% is a significant step in the right direction, but it doesn’t materially change the “higher for longer” backdrop facing households and property markets. The broader disinflation trend remains intact, yet the journey back to target is unlikely to be linear, which continues to keep confidence fragile among buyers and developers. Mortgage pricing has improved and recent rate cuts are welcome, but it will take time for any meaningful reduction in monthly costs to filter through.

“In property, this is unlikely to shift the entrenched wait-and-see mindset in the mainstream market. Capital will continue to favour structurally resilient, income-led sectors such as build-to-rent, co-living, logistics, self-storage and data centres, where chronic undersupply underpins demand. A clearer, sustained downward path for inflation and rates would be the real catalyst for unlocking stalled projects. Until then, disciplined, income-focused and debt strategies remain a pragmatic way for investors to stay active while carefully managing downside risk.”

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.”

Neil Rudge, chief banking officer for Commercial at Shawbrook: 

“Inflation’s retreat towards 3% reinforces expectations that we are on track to reach the Bank of England’s 2% target in the coming months. For SMEs, this isn’t simply a positive headline – it marks a potential turning point from short term cost management back towards structured growth planning.

“Over the past two years, many businesses have had to prioritise resilience, managing input cost volatility and protecting margins. Greater price stability gives leadership teams the confidence to plan further ahead, revisit deferred investment decisions and model expansion with a clearer view of future costs. It also gives the Monetary Policy Committee more room to consider how quickly borrowing conditions can normalise.

“However, many businesses remain in a holding pattern. They are waiting for the combination of sustained inflation stability and a tangible reduction in borrowing costs before fully committing to major investment decisions. That blend of predictability and affordability will be key to unlocking the next phase of growth. The businesses that are best placed to capitalise on this backdrop will be those with a clear strategy and access to funding structures that match their growth profile. In a more stable environment, the quality and flexibility of financial support becomes just as important as the headline cost of capital.

“If we continue to see inflation trend downward and rates begin to ease in a measured way, 2026 has the potential to mark the start of a more confident and sustained investment cycle for UK growth businesses.”

Kris Brewster, director of retail banking at LHV Bank:

“Since 2021, the Bank of England has badly let down UK consumers, failing to keep inflation in check. But could this be about to change with today’s drop?

“Despite January’s Bank of England review, citing volatility and poor oversight for years of forecasting mistakes, the conclusion is clear – the Bank keeps getting inflation wrong. And it’s the UK consumer who pays, with mortgage borrowers suffering a cost of living crisis while savers have watched returns on their cash fade with every cut to Base Rate. 

“Today’s news makes the case for a March Base Rate cut clearer, and with signs of confidence in the mortgage and housing markets, we expect to see mortgage lenders price more keenly as the fight for customers heats up.

“On the flip side, expect to see savings rates slide further. Savers holding cash in a low-paying savings account will see their spending power come under fire. This is not a time for inertia or misplaced loyalty to 0% interest accounts. Savers need to act now to secure their cash.”

Nathan Emerson, CEO of Propertymark, comments:

“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.”

Martin Sims, distribution director at Molo Finance:

“A further step down in inflation towards 2% strengthens the case for at least one more Base Rate cut this year, which would be positive news for landlords and residential buyers, and provide a renewed boost of confidence to the property market.

“We are already seeing renewed interest in UK property from overseas investors and Hamptons has reported that one in five newly incorporated buy-to-let companies in 2025 is owned by non-UK nationals, up from 13% in 2016. Company formations are running 8% ahead of 2024’s total, with around 67,000 expected by year end and, of those, roughly 13,500 will be owned at least in part by non-UK nationals.

“For expat investors, a clear move back to target inflation will signal greater economic stability. The UK’s deep rental market and long history of recovery continue to support its reputation as a relative safe haven. Lower inflation can ease pressure on tenants’ household bills, which supports rental payments and overall portfolio performance. It can also lead to sharper product pricing and more workable stress testing.

“If inflation settles at 2%, it is likely to spur further activity in buy to let. Investors who have been waiting on the side lines may see this as the point to refinance, expand or enter the market with a clearer view on rates.”

Richard Pike, chief sales and marketing officer at Phoebus Software: 

“After December’s surprise hike in inflation, today’s news that inflationary pressures have eased again will come as a welcome relief for households, although with wage growth stagnant, people won’t be feeling much better off. 

“With joblessness rising and wage growth falling, the Bank of England has an important decision to make at its next meeting about whether to use monetary policy to give the country an economic boost. There’s a strong case now for a base rate reduction in March, which would help millions of homeowners and stimulate the property market, helping to drive much-needed growth.”

Ben Thompson, director of home moving strategy, Mortgage Advice Bureau:

“This morning’s drop in inflation to 3% is the ‘green light’ the mortgage market has been waiting for. The Bank of England held its breath earlier this month, but with inflation now cooling faster than expected, the pressure to cut the base rate in March has gone from a simmer to a boiling point. While the market has been stabilising for months, this latest drop is the spark that could ignite a fresh price war among lenders. 

“For anyone moving home or looking to remortgage, the landscape has changed overnight. The ever-present ‘mortgage cliff’ is flattening, with those coming off historic lows will find the transition to today’s deals far more manageable than the volatile peaks of last year. Crucially, lower inflation also makes lender ‘stress tests’ easier to pass, handing first time buyers back the borrowing power that has felt out of their grasp for years.

“As the market is now moving at a quick pace, you can’t afford to go it alone. This is where a mortgage broker becomes your go-to. They don’t just find a rate – they have access to exclusive products you can’t find on the high street, and can lock in a better deal the second one drops. When a 0.25% difference can help put more money back into your pockets, having an expert time your homebuying journey is the smartest decision you can make.”

Charlie Ambler, co-chief investment officer, partner at wealth management firm Saltus: 

“While a drop will reassure markets that inflation will follow a downward trajectory over the course of the year, the risk of renewed pressure later in 2026 remains front of mind. 

“Markets are likely to interpret a 3% reading as supportive of the current expectation for gradual rate cuts this year, rather than an acceleration of easing. The Bank has signalled that policy will remain cautious and data dependent, particularly as the impact of Autumn Budget measures – including energy bill support from April – feeds through the economy.

“For investors, the message remains one of discipline. Short term movements in headline inflation can shift sentiment, but long term returns are driven by maintaining diversified exposure to quality assets. As the rate cycle slowly turns, opportunities will emerge in rate sensitive sectors and selectively within UK equities, but portfolio positioning should remain aligned to long term objectives rather than short term volatility.”

George Lagarias, chief economist at Forvis Mazars: 

“Gravity is finally settling in. An economy of sluggish growth, climbing unemployment and softer wage growth, in the eye of a global trade disruption, has absolutely zero reason to be consistently inflationary. The Bank of England still waited for proof and now it has it. We would expect to see faster rate cuts going forward from this point on.” 

David Hollingworth, associate director at L&C Mortgages:

“The rate of inflation was widely expected to take a sharp fall in January, after the larger than anticipated rise in December.  This will further the hope that inflation is now on the downward path, to take it closer to the Bank of England’s target.  

“It will do nothing to derail the chance of another base rate cut to come as soon as next month, especially after the rate of unemployment rose again yesterday.  The tight 5-4 vote to hold base rate this month, with the minority preferring a cut, has also strengthened the market’s belief that base rate will be cut further.

“That 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.”