London hits fresh high as UK inflation fall increases odds of March interest rate cut

In response to today’s inflation data, chancellor Rachel Reeves, said:

However, Sir Mel Stride, the shadow chancellor, said:

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:

Core inflation, which strips out volatile food and energy prices, fell to 3.1% last month, down from 3.2% in December.

Meanwhile, services inflation, which is closely watched by the BoE when setting interest rates, fell to 4.4% in January. This marks a drop from 4.5% a month earlier.

Asian equity markets are higher this morning but with still low volumes due to the closure of markets in mainland China, South Korea, and Hong Kong.

Japanese stocks are recovering from losses incurred earlier this week, with the Nikkei (^N225) trading 1% higher.

On Wall Street, stocks remained little changed on the first day of trading this week, following Monday’s bank holiday, as investors await the minutes from January’s Federal Reserve meeting.

The S&P 500 (^GSPC), the Dow Jones Industrial Average (^DJI) and the tech-heavy Nasdaq Composite (^IXIC) all climbed about 0.1%

Volatility re-emerged across AI linked equities, with the VIX at one point nudging up towards YTD highs (just shy of 23).

The Philadelphia Semiconductor Index (-0.02%) recovered from being down more than -2.5% intraday, the software & services (-1.59%) segment still led the declines within the S&P 500.

Some defensive sectors also struggled, with consumer staples down -1.51% as Walmart (WMT) fell -3.76% from what had been a 20% gain year-to-date. Volatility was also evident across other high profile 2026 themes, with Brent crude (BZ=F), gold (GC=F) and Bitcoin (BTC-USD) all ending weaker, in part thanks to cautiously upbeat comments out of US-Iran talks.

Good morning, and welcome back to our markets live blog. As usual we will be taking a deep dive into what’s moving markets, and happening across the global economy.

Looking ahead, upcoming data include US January industrial production, capacity utilisation, the leading index and December durable goods orders. Elsewhere, UK January CPI, RPI and PPI data are due, alongside Canada’s January existing home sales.

Central bank events include the release of the FOMC meeting minutes and speeches from ECB members Villeroy and Schnabel.

Notable earnings include Analog Devices and Booking, while the US Treasury will auction $16bn of 20 year bonds.

Here’s a snapshot of what’s on the agenda for today:

• 7am: Trading updates: Glencore, BAE Systems

• 7am: UK inflation report for January

• 9.30am: UK house prices and rents data for December

• 1.30pm: US housing starts and building permits data

• 1.30pm: US durable goods orders