British inflation hits lowest in almost a year
Inflation in Britain has fallen to its lowest level since March 2025, although a measure of underlying price pressures remains strong, according to official data, which reinforces the view that the Bank of England will cut interest rates soon.
The Office for National Statistics stated that consumer prices increased by 3.0 percent on an annual basis in January, slowing down from the 3.4 percent increase in December, due to slower increases in transport, food and non-alcoholic beverage prices.
Most economists polled by Reuters expected headline inflation to fall to three percent in January.
The BoE had predicted in early February that the rate would fall to 2.9 percent, ahead of a larger decline closer to the central bank’s two percent target in April.
Food inflation, which the Central Bank sees as key to shaping public expectations about prices more broadly, was at its weakest level since April 2025.
Airline fares fell sharply this month after rising in December.
Core inflation, excluding energy, food and tobacco prices, increased by 3.1 percent in January, reaching its lowest level since September 2021.
Sterling was little changed against the US dollar following Wednesday’s ONS data.
Interest rate futures show an almost 80 percent chance that the BoE will cut rates in March, followed by another in late 2026.
Some warning signs remain for the BoE in Wednesday’s data.
Services inflation, which is closely watched as an indicator of domestic price pressures, slowed marginally to 4.4 percent from 4.5 percent in December, above a Reuters poll’s expectations for a drop to 4.3 percent.
“Given that almost all survey measures of prices show the decline in inflation is slowing, the MPC will still need to be cautious even if headline inflation falls this year,” said Thomas Pugh, chief economist at accountancy firm RSM UK.
“In fact, services inflation turns out to be much more persistent than headline inflation.”
Inflation in the UK reached a higher level than the US and the Eurozone in January, at 2.4 percent and 1.7 percent respectively.
The BoE expects the pace of price increases to slow sharply in 2025, reaching almost its two percent target in April, as increases in utility costs and other government-controlled tariffs are excluded from the annual comparison.
