posted 17th January 2026
🇬🇧 UK Economic Update January 2026
🧮 Inflation & Interest Rates (Latest)
• Inflation: Prices in the UK are still rising, but much more slowly than a couple of years ago. Annual inflation is around 3.2% — down from higher levels and heading toward the Bank of England’s target of 2%.
• Bank of England Base Rate: The Bank of England cut its base interest rate to 3.75% in December 2025 and is expected to lower it gradually if inflation keeps easing.
This matters because inflation affects everyday costs (like energy, food and services), and interest rates influence borrowing costs and returns on savings.
🏡 Mortgages
• With the Bank of England base rate now at 3.75%, borrowing costs have eased a bit compared with previous years.
• Many lenders base mortgage pricing off broader market rates — so mortgage deals may already be slightly lower than before the base rate cut.
• Looking ahead, if the Bank continues to cut rates slowly, mortgage costs may become gradually cheaper — but any change will likely be modest and take time.
Bottom line for clients:
If you’re looking to remortgage or move home, small reductions in typical mortgage pricing may help, but it’s still wise to talk to a mortgage specialist and consider your timing carefully.
💷 Pensions
• Pension growth is linked to long-term economic conditions. With inflation cooling and interest rates expected to fall gradually, pension funds generally benefit from stable, long-term planning.
• Lower inflation helps preserve the real value of retirement income over time.
• If markets remain calm and inflation continues toward target, that can reduce the pressure on investment returns to “catch up.”
Bottom line for clients:
Keeping a focus on long-term horizons is key — short-term market moves happen, but long-term progress in inflation and interest rates supports pension planning over years and decades.
📈 Investments
• Investment markets often move based on expectations for inflation and interest rates:
— Lower inflation and rate cuts can be positive for equities (shares), as borrowing costs fall.
— Bonds can do better when rates are going down.
• However, markets are still adjusting, and short-term ups and downs are normal.
Bottom line for clients:
A diversified, long-term investment approach helps smooth out the bumps. Short-term headlines are less important than sticking to your goals and regularly reviewing your plan with a professional.
🧠 Overall Takeaway
The UK economy is showing signs of stabilisation:
• Inflation is coming down toward the Bank of England’s 2% goal.
• Interest rates are heading lower, but gradually — not all at once.
• Mortgages, pensions, and investment markets are all adjusting to this environment.
What this means for you:
• Mortgage costs may ease slowly — great news for people coming up for remortgage or moving home.
• Pensions stand to benefit from lower inflation and stable markets over time.
• Investments may find support from a slowly easing rate backdrop, but staying diversified and focused on the medium/long term is key.