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UK inflation fell sharply to 3 per cent in January, strengthening the case for the Bank of England to cut interest rates as soon as its next meeting in March.
Wednesday’s figure from the Office for National Statistics marked a slowdown from December’s 3.4 per cent figure and was the lowest rate since last spring. It was in line with the expectations of economists polled by Reuters.
The BoE held interest rates at 3.75 per cent this month but the decision was closely fought, with some policymakers arguing for an immediate cut because of weakening demand and a cooling labour market.
Official figures on Tuesday showed that unemployment rose to 5.2 per cent at the end of last year while wage growth slowed, fuelling the case for another quarter-point rate reduction.
The central bank predicts that inflation will fall to roughly its target level of 2 per cent from April, thanks in part to Budget measures aimed at curbing bill increases.
Zara Nokes, global market analyst at JPMorgan Asset Management, said it appeared the UK had “finally turned a corner” in its battle against inflation. “Today’s data showed a meaningful step down in headline inflation, with broad-based disinflation across sectors,” she said.
January’s decline in price growth, which brought the headline figure down to its lowest since March last year, was driven by transport and food prices.
Core CPI inflation, which excludes energy, food, alcohol and tobacco, slipped to 3.1 per cent from 3.2 per cent in the 12 months to December 2025. Services inflation, which is closely watched by the BoE as a sign of underlying inflationary pressures, fell from 4.5 per cent to 4.4 per cent.
The pound was little changed after the data release, down 0.1 per cent against the dollar in early trading at $1.356.
Responding to the figures, Rachel Reeves, the chancellor, 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.”