UK inflation fell to 3% in January, strengthening expectations that the Bank of England could cut interest rates in the coming months. The figure, published by the Office for National Statistics, was in line with most City forecasts and marks the lowest annual rate since March 2025.
The slowdown was driven largely by lower petrol prices, cheaper air fares and easing food costs. Food and non-alcoholic drink inflation dropped to 3.6% in the year to January, down from 4.5% in December and its lowest level in nine months.
Fuel prices also declined. Petrol and diesel prices fell by 2.2% over the year, compared with a 0.9% rise previously. Between December and January, the average price of petrol dropped by 3.1p a litre to 133.2p, while diesel fell by 3.2p to 142.5p.
Core inflation, which excludes energy, food and alcohol, edged down to 3.1%, its lowest level since 2021. However, services inflation remained elevated at 4.4%, only slightly lower than December’s 4.5% and above the Bank’s forecast of 4.1%.
The data adds to signs of a cooling economy. Growth was just 0.1% in the final three months of the year, while unemployment rose to 5.2%, a five-year high. Private sector pay growth also eased to 3.4%.
With inflation expected to move closer to the Bank’s 2% target later this year, policymakers may judge that a rate cut from the current 3.75% is warranted as early as next month.
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