A drop in inflation has offered hope to the more than 1 million homeowners on tracker mortgages, with the Bank of England expected to cut its base rate of interest next month.

Figures published by the Office for National Statistics today showed that inflation was 3 per cent in the year to January, down from 3.4 per cent in December. It’s the lowest level for the consumer prices index measure of inflation since March last year.

• UK inflation rate falls to 3 per cent in January

Financial markets expect the Bank of England to cut the base rate by 0.25 percentage points to 3.5 per cent at its next meeting on March 19. This would give an immediate boost to those with tracker mortgages whose variable interest rates are linked to the base rate. Mortgage brokers said fixed rates would begin to drop too, so homebuyers and the 1.8 million whose fixed mortgage deals are set to end this year could benefit.

A 0.25 percentage point cut you your mortgage interest rate is worth £250 a year (nearly £21 a month) for every £100,000 of mortgage debt.

The average balance on a tracker mortgage was £138,000 in June, according to the trade body UK Finance, with a 5.43 per cent interest rate. A 0.25 percentage point cut would give the average tracker-rate holder about £29 off their monthly bill. For those on standard variable rates, the rate given to borrowers coming off fixed deals, the average mortgage was £66,000 in June, with an interest rate of 6.95 per cent. Those borrowers could be about £14 better off a month.

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Chris Sykes from the mortgage broker MSP Financial Solutions said: “A cut in the base rate will bring tracker rates more in line with fixed rates. Lenders will be incentivised to reduce their variable rates, improving overall affordability and giving some zest to the housing market.”

David Hollingworth from the broker London & Country said: “There has been lots of focus on fixed rates, with the majority still choosing the certainty of fixed deals, but with further interest rate cuts we may start to see that balance shift and more people consider tracker rates.

“Fixed rates have been bumping around in recent weeks, but this inflation report should only firm up the expectation that base rate cuts will be coming sooner rather than later. We’ve seen lenders cutting fixed rates back.”

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The drop in inflation followed a spike in unemployment, which hit 5.2 per cent in the last three months of 2025 — the highest rate in nearly five years. A cooling job market will dampen wage growth, which combined with the fall in inflation has raised expectations that the Bank of England will cut its base rate.

During last month’s meeting the Bank of England’s monetary policy committee decided to keep the rate unchanged. But the governor Andrey Bailey suggested there was room for rate reductions this year if inflation falls in line with expectations.