UK inflation slowed extra sharply than many had feared in January, falling to three per cent and bolstering expectations that the Financial institution of England may resume chopping rates of interest as early as subsequent month.
Knowledge from the Workplace for Nationwide Statistics confirmed shopper worth index (CPI) inflation eased from 3.4 per cent in December to three per cent in January, the bottom annual charge since March 2025. The studying was in step with analysts’ forecasts.
The decline was pushed by decrease airfares, falling petrol costs and easing meals prices. Meals inflation slowed to three.6 per cent year-on-year, down from 4.5 per cent in December and its lowest stage since final April. Companies inflation edged all the way down to 4.4 per cent from 4.5 per cent, whereas core inflation, which strips out unstable parts resembling vitality and meals, fell to three.1 per cent.
Nevertheless, greater costs for resort stays and takeaway meals partly offset the broader slowdown.
Grant Fitzner, chief economist on the ONS, stated: “Inflation fell markedly in January, pushed partly by a drop in petrol costs and airfares following December’s will increase. Decrease meals costs additionally contributed, notably for bread, cereals and meat.”
The easing in worth pressures comes amid indicators of weak spot within the labour market. Earlier this week, figures confirmed unemployment had climbed to five.2 per cent, its highest stage in 5 years, whereas youth joblessness reached a decade excessive.
Taken collectively, softer inflation, rising unemployment and sluggish development have elevated market expectations of a charge minimize when policymakers meet on 19 March. Monetary markets are actually pricing in a powerful chance that charges will likely be lowered from 3.75 per cent to three.5 per cent. The Financial institution lowered charges 4 instances in 2025.
Rachel Reeves stated chopping the price of residing remained her “primary precedence”, pointing to measures within the November price range resembling vitality invoice changes and the primary rail fare freeze in 30 years as serving to to ease stress on households.
At its most up-to-date assembly, the Financial institution’s financial coverage committee voted narrowly, by 5-4, to carry charges regular. Governor Andrew Bailey indicated there was scope for additional easing this 12 months if inflation continued to reasonable.
Yael Selfin, chief economist at KPMG UK, stated the newest figures “pave the trail for a March charge minimize” and advised there could possibly be as much as three reductions over the course of 2026.
Markets reacted modestly. Sterling dipped 0.06 per cent towards the greenback to $1.35, whereas the yield on the ten-year UK authorities bond fell to 4.38 per cent, its lowest stage in round a month.
With inflation edging nearer to the Financial institution’s 2 per cent goal and financial momentum slowing, consideration will now flip as to whether policymakers decide the cooling development sufficiently sturdy to justify renewed financial easing.
