UK inflation dropped to a nearly one-year low of 3% in January as the pace of price increases continued to ease. This marks the lowest inflation level since March 2025, down from 3.4% in December, a decline that was widely anticipated by economists.
Lower inflation does not signify a halt in price increases but rather a slower rate of rise. The Office for National Statistics (ONS) attributed the decrease to lower petrol and food prices, along with reduced airfares. Last year, inflation peaked at 3.8%, with a high of 11.1% recorded in October 2022.
The Bank of England foresees inflation approaching its 2% target by mid-2026. Today’s inflation update has raised expectations of a potential interest rate cut in March. Jonathan Moyes, Head of Investment Research at Wealth Club, noted the likelihood of the first rate cut of 2026 due to unfavorable labor market conditions and economic indicators.
Food and non-alcoholic drink prices saw a 3.6% increase in the 12 months leading to January 2026, a decline from the 4.5% rise in the preceding 12 months. The Bank of England, aiming for 2% inflation, uses its base rate to manage price stability and economic activity.
Core inflation, excluding volatile components, stood at 3.1% in January. The Chancellor emphasized efforts to reduce the cost of living through various measures, including energy bill reductions and rail fare freezes. Grant Fitzner, Chief Economist at the ONS, highlighted the drivers behind the inflation drop, including lower petrol and food prices.
Inflation, which measures changes in the prices of goods and services, affects consumers’ purchasing power. The ONS tracks inflation using a basket of goods that reflects household spending patterns. When inflation decreases, prices are still rising, albeit at a slower pace. If prices were to decrease, it would result in deflation when inflation falls below 0%.
The latest ONS data confirms the decline in inflation to 3% in January, aligning with economists’ expectations.
