UK inflation eases to 3.0% in January

Britain’s annual inflation rate slowed in January, matching market expectations, according to official figures released on Wednesday, strengthening the case for a possible interest rate cut by the Bank of England next month.

Data from the Office for National Statistics showed that the Consumer Prices Index dropped to 3.0 per cent in January, down from 3.4 per cent in December.

The ONS said inflation fell to its lowest annual level since March last year, partly due to lower petrol prices.
The latest figures support the central bank’s view that inflation is likely to continue easing towards its two per cent target in the months ahead, as declining energy costs help balance out higher water charges and other persistent expenses.

Earlier this month, the Bank of England kept its benchmark interest rate unchanged at 3.75 per cent but indicated that further reductions were likely.

Although wage growth has moderated in the private sector, it remains relatively high in the public sector. Official data also show unemployment rising to a five-year high of 5.2 per cent.

Since winning the general election in July 2024, Prime Minister Keir Starmer’s Labour government has faced challenges in stimulating economic growth, following tax increases introduced in its two budgets.

Finance Minister Rachel Reeves said the government’s budgetary decisions were helping to bring inflation down, responding to the latest data.

Recent figures also revealed that economic growth in the final quarter of 2025 fell short of expectations, prompting the central bank to revise down its growth forecasts for this year and next.

The Bank of England now projects gross domestic product growth of 0.9 per cent this year and 1.5 per cent in 2027, compared with earlier forecasts of 1.25 per cent for 2026 and 1.6 per cent for 2027.

Analysts say the combination of weak economic momentum, a cooling labour market, and easing wage pressures could make the central bank more comfortable with cutting interest rates as 2026 unfolds.