# Inflation falls to 3% boosting chance of interest rate cuts

By Emma Wall — 2026-02-18

Emma Wall, chief investment strategist at Hargreaves Lansdown, said: “UK inflation has fallen to three per cent for the month of January, down from 3.4 per cent the previous month, according to the Office of National Statistics.

“Lower fuel and airfares helped ease pricing pressures, as did slower inflation for food and non-alcoholic drinks.

“Core inflation, which excludes the often-volatile prices of food, energy and alcohol also fell on the previous month, as did services inflation, which has been sticky on the last year.

“These measures moving in tandem suggests that the outlook from here will be lower inflation, and the Bank of England expects inflation to fall to the target of two per cent this year.

“The welcome news comes following yesterday’s weaker jobs data, meaning a March rate cut now looks certain.

“Last time the Monetary Policy Committee met, the vote was split 5-4 to hold rates vs cut them, so the market trajectory is not a surprise – what will be key is the cadence and velocity from here.

“We expect that the MPC will cut twice this year, having favoured a cautious approach.

“Markets looking for forward guidance will no doubt place emphasis on the rhetoric from Bank of England Governor, Andrew Bailey, in the press conference following next month’s decision.

“Gilt yields have fallen over recent days, with the 10-year dropping below 4.4 per cent having been above 4.5 per cent at the end of last week.

“As well as supportive UK data, there is also some contagion from the US, where the 10-year Treasury yield has fallen by nearly 20 basis points since the start of last week.

“What does this mean for savers and investors? Short-dated Gilt yields are certainly lower than they were a year ago – and should inflation continue to ease, this is supportive of lower rates, which presents opportunities for active traders, or indeed investors who want to lock in higher rates of income now.

“Lower yields and lower inflation are also broadly supportive for equities, as pricing pressures – particularly energy costs – have weighted on corporates.

“However, jobs data and economic growth will be key here; any signs of economic weakness could spook markets and cause businesses to put the brakes on expansion, whether that means hiring or spending.

“Savers who can should lock in higher rates of interest now, as fixed term products are likely to quickly reflect the market trajectory.

“Using a savings platform will help consumers ensure they are getting the best rates on the market from a range of providers.”

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