What the latest inflation figure means for mortgages, savings and investments

Inflation measured 2.6pc in March, down from 2.8pc in February. While the rate of price rises was cooler than many experts expected, it’s still significantly above the Bank of England’s 2pc target.

The Consumer Prices Index (CPI) measure of inflation was affected by falling prices for women’s clothing and footwear, with no significant price rises to offset it, although alcohol and tobacco prices had risen notably.

Core CPI, which strips out volatile prices from food and energy costs, measured 3.4pc, down from 3.5pc the previous month.

This comes ahead of the next Bank Rate decision on May 8. The Bank of England is expected to cut interest rates next month in a boost for households. Economists have been pricing in lower borrowing costs as a result of Donald Trump’s trade war, which some believe could trigger a global recession.

In its last meeting the Bank of England’s Monetary Policy Committee chose to hold interest rates at 4.5pc, but it could opt for another cut.

This could have a significant impact on your finances – including savings, mortgages and investments. Here, Telegraph Money explains what your options are.

• What does the latest inflation figure mean for your mortgage?
• What does easing inflation mean for your savings?
• What does it mean for your pensions and investments?

What is inflation?

Inflation is the term used by economists and governments to describe the speed at which prices are rising.

In Britain, we usually measure inflation by comparing the price of a particular item to its price at the same time the previous year.

For example, if a chocolate bar cost £1 in March 2024 and then in March 2025 it costs £1.04, its price has risen by 4pc and thus inflation for this particular item stands at 4pc.

However, statisticians have to calculate the pace of price rises across the whole of the economy and use a variety of methods to estimate this as accurately as possible.

The most closely followed of these methods used by the Government and the Bank of England (BoE) is the Consumer Price Index, often abbreviated to CPI, which is published each month by the Office for National Statistics (ONS).

This calculates inflation based on a basket of hundreds of goods and services, which statisticians at the ONS update every year.

What does the latest inflation figure mean for your mortgage?

Mortgage rates have remained high over the past two years, adding financial pressure across the housing market.

For first-time buyers, higher rates of borrowing have made it harder to get on the housing ladder, while existing homeowners face a mortgage shock when coming off ultra-low fixed rate deals and on to new loans at today’s rates.

At the time of writing, the average two-year fixed rate mortgage is 5.15pc, according to analyst Moneyfacts.

Fixed-rate and variable-rate mortgages are linked to the Bank Rate, although not necessarily directly.

Nicholas Mendes of John Charcol said: “The recent escalation in US trade tensions has unsettled markets and introduced fresh risks. As a result, expectations have shifted. Markets are now pricing in up to four Bank Rate cuts this year, which would bring the base rate down to around 3.5pc.

“As the global picture evolves, especially around US trade policy, the UK mortgage market will remain highly sensitive to external shocks. For now, the environment is improving but stability is still a work in progress.”

Luke Bartholomew, deputy chief economist, at Aberdeen said: “The inflation report is a little bit softer than expected, with the headline rate dipping and the crucial services inflation component also coming in below expectations. Obviously, this data comes before both the UK domestic national insurance and the international tariff impact. So much could change, but tariffs should be disinflationary for the UK economy, as they weigh on global growth and cause trade diversion.

“Nonetheless, inflation is still likely to head higher in coming months due to an increase in administered prices and possible second round effects from higher taxes. But with the recent fall in energy prices and the stronger pound, the peak in inflation is now likely to be somewhat lower than the Bank of England has been forecasting. An interest rate cut in May looks increasingly nailed on, and the path to more easing in the second half of the year is getting clearer.”

If you’re due to remortgage soon, our mortgage cost calculator can tell you how a new deal will affect your monthly bills.

What can you do if you need to get a mortgage?

For homeowners coming to the end of their fixed-rate mortgage it is important to remember you can start reviewing your options three to six months in advance and lock into a deal without committing to it. If rates then go up before you need to finalise your loan you are safe, but if rates fall in the interim you can choose a better deal.

Mr Mendes said: “For mortgage holders with less than six months remaining on their fixed-rate deal, it is advisable to start reviewing your options now.

“Many lenders allow you to lock in a new rate up to six months in advance, which could shield you from potential further increases.”

What are the best deals on the market?

For first-time buyers looking to borrow up to 90pc of the house price, the best deals on the market include Danske Bank’s five-year fixed rate at 4.47pc with a £999 product fee, and the same provider’s two-year fixed rate at 4.22pc, also with a product fee of £999.

For those with 25pc equity looking to remortgage Danske Bank also has a two-year fixed rate at 3.88pc with a product fee of £999. If you have 25pc equity and are looking to fix for five years Barclays has a deal at 4.14pc with a product fee of £899.

If you are remortgaging or buying for the first time with 40pc equity, Danske Bank is offering a five-year fixed rate of 3.93pc, with a £999 product fee. If you are looking to fix for two-years with 40pc equity, the same lender has a 3.73pc rate deal with a £999 product fee.

What does easing inflation mean for your savings?

Rising inflation is bad news for savers, particularly when the Bank Rate is on the way down. While there are still plenty of deals on the market that can equal or beat the March rate of 2.6pc, you’ll need to make more of an effort to find them.

That being said, if the Bank of England slows future Rate cuts then savings rates may not fall quite as quickly as they could have done otherwise.

The average easy access savings rate is currently 2.78pc, according to Moneyfacts, but the most competitive accounts still pay around 4.75pc – though they are becoming increasingly rare.

It’s important to make sure your savings are earning a rate higher than inflation wherever possible, as inflationary price rises eat into the value of savings – put simply, the rising prices mean your money won’t be able to buy as much as it previously could.

Our inflation calculator can show you how much your savings are being eroded by price increases.

What can you do about it?

As a minimum, you should check your current rates and make sure you’re beating the inflation rate.

Planning ahead, it might be a good time to commit to a fixed-term account if there’s cash you won’t need to access for at least a year.

Ms Haine said: “Savers wanting to take advantage of bumper savings rates need to cash in while they can. The latest dip in inflation means that more savings deals will beat inflation but remember, it is the post-tax net return on that cash that is key.

“Rates are likely to ease back in the months ahead so securing a top deal now will prolong the amount of time a saver receives an inflation-beating return. Remember, the personal savings allowance has not budged since it was first introduced in 2016, so storing too much cash in a regular bank or building society account may flag the interest of the tax office.

“With the tax year end now just days away, exploring tax-efficient options such as saving into an Isa to take advantage of your £20,000 tax-free allowance, or topping up a pension is vital for savers who want to protect as much as their income and gains from the ravages of tax as possible.”

What’s the best deal on the market?

For easy access accounts, Atom Bank is offering 4.75pc for any months where you don’t make a withdrawal; if you do, the rate drops to 3pc.

For a fixed account, JN Bank pays 4.51pc for a four-year bond, with a minimum deposit of £100.

To find top savings rates, updated daily, see our guides to the best easy-access accounts and best fixed-rate bonds. You can also find the best notice accounts, top regular savers and best rates available for current accounts that pay interest.

For options to protect your returns from tax, see our guide to the best cash Isas and best lifetime Isas.

And, if you want to put money away for your children, see our guides to the best Junior Isas and best children’s savings accounts.

What does it mean for your pensions and investments?

The stock market is not officially linked to inflation or the Bank Rate, but as both are significant indicators of the state of the economy, they can have a big impact on investor sentiment.

Donald Trump’s tariff announcements have caused market turmoil in the past couple of weeks, but it could spell an opportunity for investors.

Regarding March’s inflation data, David Murray, head of Aberdeen Financial Planning, said: “A fall in inflation brings a hint of optimism – but let’s not mistake slower price rises for falling prices. Households are still paying far more than they were a few years ago, and the financial pressure hasn’t vanished.

“For those with savings or investments, this is a chance to get ahead. Money left languishing in low-interest accounts risks losing more value every day. Now’s the time to sharpen your financial strategy – whether that means hunting out inflation-beating savings rates, making use of Isas and pensions, or reviewing your investments to make sure they’re still working hard.

“While many are understandably uncertain about their next move in today’s market, one thing’s clear: a calm, well-diversified approach has never been more important. Short-term noise shouldn’t be allowed to knock long-term plans off course.”

Inflation may impact retirees, or those who are due to retire soon, due to its impact on bonds. Pension “lifestyling” strategies tend to move towards less risky investments as you reach retirement, in order to shield your money from market fluctuations – often, this means increasing your proportion of bonds.

Dean Butler, of Standard Life, part of Phoenix Group, said: “For those more comfortable with taking on risk, investing can provide the potential for higher long-term returns and, if your finances allow, you might be in a position to take advantage of the current lower market prices, though investing comes with no guarantees. 

“Irrespective of market conditions, pensions remain one of the most tax-efficient ways to save, combining benefits of possible investment growth, employer contributions and tax efficiency making them a compelling option for long-term savers.”