What experts think UK inflation drop could mean for interest rates and mortgages

UK inflation fell last month despite most analysts expecting the rate to remain unchanged. The rate of Consumer Prices Index inflation fell from 2.6 percent in November to 2.5 percent in December, the Office for National Statistics has said.

Despite the drop, December’s headline figure still remains above the Bank of England’s 2 percent target, which has raised concern for economists and policymakers amid the stagnant economic growth.

Chancellor of the Exchequer Rachel Reeves said she will “fight every day” to improve people’s living standards. “There is still work to be done to help families across the country with the cost of living. I will fight every day to deliver that growth and improve living standards in every part of the UK," she said.

Former Bank of England policymaker Michael Saunders said Downing Street will be breathing a “sigh of relief” after the surprise dip in December inflation. The latest figures come amongst a period of turbulence in the UK financial markets, with the value of the pound dropping sharply and the cost of borrowing rising to decade-high levels over the last week.

A drop in inflation can prompt mortgage rates to fall because experts believe that the Bank of England will then bring the base interest rate down. Experts have now weighed in on what the latest drop in UK inflation means for interest rates and mortgages.

Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, says: “While the better-than-expected figure opens the door for further interest rate cuts from the Bank of England, the drop in the headline rate is only expected to be temporary with inflation edging up again in the coming months.

“While the latest inflation data appears positive for consumers, three