UK inflation fell to 3% in January, its lowest level since March 2025, according to the Office for National Statistics. The drop was driven by lower petrol prices, air fares, and food costs, bringing the rate closer to the Bank of England’s 2% target.
The ONS reported that food and non-alcoholic drink inflation slowed to 3.6%, down from 4.5% in December, reaching a nine-month low. Petrol and diesel prices fell 2.2% year-on-year, with the average petrol price dropping to 133.2p per litre. Air fares also fell after a December increase.
Core inflation, excluding volatile items like energy and food, eased to 3.1%, while services inflation remained sticky at 4.4%, above the Bank’s forecast of 4.1%. Money markets now put an 86% chance of a rate cut to 3.5% in March, up from 77% before the data.
Suren Thiru, economics director at ICAEW, described a spring rate cut as “almost assured,” though some policymakers may wait for further evidence. The economy grew only 0.1% in the fourth quarter, and unemployment rose to 5.2%, a five-year high.
Chancellor Rachel Reeves welcomed the figures, attributing them to government measures including £150 off energy bills and a rail fare freeze. “Our economic plan is the right one,” she said, “to cut the cost of living, cut the national debt, and create conditions for growth.”
