UK inflation dropped to 3% in January, its lowest level since March 2025, according to the Office for National Statistics (ONS). The decline, driven by falling petrol prices, air fares and food costs, has raised expectations that the Bank of England may cut interest rates as early as next month.
The ONS reported that petrol and diesel prices fell by 2.2% over the year, while food price inflation slowed sharply to 3.6% from 4.5% in December. Air fares also dropped after a rise in December, contributing to the overall slowdown.
Core inflation, which excludes volatile items like energy and food, eased to 3.1% from 3.2%, the lowest since 2021. However, services inflation remained sticky at 4.4%, above the Bank's forecast of 4.1%.
Money markets now see an 86% chance of a rate cut to 3.5% in March, up from 77% before the data release. Suren Thiru of the Institute of Chartered Accountants said a spring cut looks 'almost assured', though policymakers may wait for more evidence of easing inflation.
Chancellor Rachel Reeves welcomed the figures, stating that the government's budget measures, including cuts to energy bills and rail fares, are helping to bring down the cost of living. The ONS noted that raw material costs for businesses fell, driven by lower crude oil prices.
