UK inflation fell to 3% in January from 3.4% in December, bolstering expectations that the Bank of England (BoE) could move to cut interest rates as early as March.
The slowdown marks the lowest annual reading since March last year, when prices were rising at a rate of 2.6%. Inflation has been edging back towards the government’s 2% target after a brief resurgence at the end of 2025.
While the headline rate has fallen, prices are still increasing, albeit at a slower pace. The decline reflects easing price pressures rather than outright falls in the cost of living.
December’s uptick had been attributed to seasonal factors, including higher airfares over Christmas and an increase in tobacco duty announced in the autumn budget.
Grant Fitzner, chief economist at the Office for National Statistics, said: “Inflation fell markedly in January to its lowest annual rate since March last year, driven partly by a decrease in petrol prices.”
“Airfares were another downward driver this month with prices dropping back following the increase in December. Lower food prices also helped push the rate down, particularly for bread & cereals and meat. These were partially offset by the cost of hotel stays and takeaways.”
“The cost of raw materials for businesses fell over the past year, driven by lower crude oil prices, while the increase in the cost of goods leaving factories slowed.”
The BoE kept its benchmark rate unchanged at 3.75% this month, though the decision exposed divisions within the Monetary Policy Committee. Some policymakers argued for an immediate reduction, citing weakening demand and signs of a cooling labour market.
Chancellor Rachel Reeves, said: “Cutting the cost of living is my number one priority. Thanks to the choices we made at the budget we are bringing inflation down, with £150 off energy bills, a freeze in rail fares for the first time in 30 years and prescription fees frozen again.”
“Our economic plan is the right one, to cut the cost of living, cut the national debt, and create the conditions for growth and investment in every part of the country.”
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