UK inflation has fallen to 3.9% in November, down from 4.6% in the previous month, driven by a decline in the price of petrol and diesel, as well as slower food inflation, according to the latest data from the Office for National Statistics.

This was more than expert predictions of a drop of up to 4% and is the lowest inflation has been in over two years.  

We reveal what this means for your finances and what you need to know. 

High inflation has been a huge issue in the UK, prompting the Bank of England (BoE) to do 14 consecutive base rate rises in two years to help drive it down. 

Some experts believe that due to falling inflation, the base rate could now be cut from March instead of May 2024, but BoE governor Andrew Bailey seems reluctant to commit to any. 

Wage growth is still high in the UK, which is concerning due to the risk that an increase in the prices of goods and services will cover higher wages.   

If inflation and wage growth continue to ease, the chance of interest rate cuts will increase further.  

While the outlook is looking positive for next year, many factors affect the rate of inflation and it's still exceeding the BoE's target.

What does falling inflation mean for mortgages? 

Thanks to inflation falling more than expected, the base rate may be cut earlier than initially expected, which is good news for mortgage holders. 

When the base rate is cut, the rates on variable-rate mortgages usually fall. After years of persistent base rate increases, this will offer some relief to these mortgage holders. 

As for fixed-rate mortgages, rates have recently fallen as mortgage costs are believed to have peaked. 

Lower inflation may also make the housing market more attractive and help drive up demand as property becomes more affordable, thanks partly to falling mortgage rates.  

“Looking at rate expectations, there’s growing confidence cuts to the base rate could begin as early as March and that by this time next year, the economic landscape will look very different – more than one in 10 are now betting rates could fall back to below 4% by next December,” said Danni Hewson, head of financial analysis at AJ Bell. 

“With around 1.5 million homeowners whose fixed-rate mortgages are up for renewal in 2024, these numbers are likely to further increase competition amongst lenders to offer better and better deals.” 

If you’re considering remortgaging, you can remortgage six months in advance and switch to a better deal before your existing offer ends.  

Buying your own home? A mortgage broker can search the whole market for the most competitive mortgage for your circumstances. 

What does falling inflation mean for savings and investments? 

Savings rates are likely to decrease as inflation does, as it implies future base rate cuts by the BoE. 

As savings rates have peaked, if you haven’t fixed your savings yet, it’s a good idea to do this now before they decrease further.  

If you’re looking for the best rates, consider a fixed-rate account or even investing. 

Unbiased can help you quickly connect with a financial adviser who can help you build the best investment strategy for you and recommend the right investments.