UK Inflation Drops, Rate Cut Expected in March 2026

UK inflation fell to a 10-month low in January 2026, driven by cheaper petrol, a slowdown in airfares, and easing food inflation. Economists, including Yael Selfin, chief economist at KPMG, predict that this decline will lead the Bank of England to cut interest rates in March 2026.

Current market indicators suggest an 86% chance of a rate cut, potentially lowering the bank rate from 3.75% to 3.5%. Rob Morgan, chief investment analyst at Charles Stanley, anticipates at least two rate cuts within the year.

The Monetary Policy Committee (MPC) recently voted 5-4 to maintain the current rate, with a notable shift in stance from hawkish member Catherine Mann. The Bank of England expects inflation to gradually ease, with projections indicating a drop to 2.1% in the second quarter of 2026.

TUC General Secretary Paul Nowak has urged the Bank to act swiftly to alleviate the financial pressures on households.