UK inflation falls to 3%, giving hopes of early cut in interest rates | Inflation
Inflation in the UK fell to 3% in January, strengthening hopes that the Bank of England will cut interest rates early.
The decline was in line with forecasts by the majority of City economists and marked the lowest level since March 2025.
The Office for National Statistics said the decline was caused by declines in petrol prices, flight tickets and food prices.
Inflation peaked at 3.8% last year, and most economists expect it to fall quickly to the Bank’s 2% target this year. The latest figures would allow for a rate cut from next month, with policymakers on Threadneedle Street worried about the pace of slowing economic growth.
ONS chief economist Grant Fitzner said that as well as oil prices, “airfares were also responsible for this month’s decline, with prices falling again following a rise in December.”
“Lower food prices also helped lower prices, particularly for bread, cereals and meat. These were partially offset by hotel stays and takeaway costs.
“Raw material costs for businesses fell last year due to the decline in crude oil prices, while the increase in the cost of goods leaving factories slowed.”
The country’s GDP rose by just 0.1% in the three months to the end of December, the Office for National Statistics said last week. According to official figures covering the same period, unemployment rose to 5.2%, the highest level in five years. Private sector earnings increased by 3.4% compared to December.
Chancellor Rachel Reeves will be pleased with figures showing the cost of the weekly shop rose at a weaker pace last month, allowing households to benefit from a rise in living standards.
Reeves used the budget in November to reduce living costs, mainly through reductions in energy bills and rail fares, and the effects of these measures will lead to a further decline in the consumer price index in April.
Reeves said on Wednesday: “Reducing the cost of living is my number one priority. “Thanks to the choices we made in the budget, we are reducing inflation with a £150 cut on energy bills, a freeze on rail fares for the first time in 30 years and a refreezing of prescription charges.
“Our economic plan is the right plan: to reduce the cost of living, reduce the national debt and create the conditions for growth and investment in every part of the country.”
