The UK's inflation rate fell to 3% in January, down from 3.4% in December, driven by a decrease in food, fuel, and airfare prices, according to the Office for National Statistics (ONS).
The ONS said the "marked" fall in January took inflation to its lowest rate since March 2025. ONS chief economist Grant Fitzner stated: "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. However, lower costs for bread, cereals, and meat were partially offset by the cost of hotel stays and takeaways.
Police and Authority Response Not Applicable
Instead, economists said the decrease raised the likelihood the Bank of England will cut interest rates at its March monetary policy meeting. The Bank of England's current key interest rate is set at 3.75%.
KPMG chief economist Yael Selfin said: "Given the favourable inflation outlook, the Bank is expected to cut interest rates three times this year, leaving interest rates at 3% by the end of 2026."\
Government and Institutional Response
Chancellor Rachel Reeves welcomed the fall, adding that "cutting the cost of living is my number one priority". Reeves also stated: "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."\
The Institute for Chartered Accountants of England and Wales (ICAEW) said Wednesday's figures show the struggle against soaring prices "took a decisive turn for the better in January". ICAEW economics director Suren Thiru stated: "These figures make a spring interest rate cut look almost assured, though a lingering question among policymakers will be whether to pull the trigger in March or April as some may want slightly more evidence of easing inflation before reducing rates."\
Expert Analysis and Forecast
Simon French, chief economist at Panmure Liberum, said there is now around an 80% chance the Bank of England will cut its interest rate in March. French also mentioned that part of the reason inflation has fallen so slowly is due to the 2024 Budget, in which employer National Insurance contributions were hiked, leading to higher prices for consumers.
As reported by the BBC, the UK economy saw a lacklustre end to 2025. The information was also covered in an article by the BBC: https://www.bbc.co.uk/news/articles/c1l7pedyzjeo
