A customer looks at products on a supermarket shelf on January 15, 2025 in London, England.
Dan Kitwood | Getty Images News | Getty Images
UK inflation fell to 3% in January, according to the latest figures from the Office for National Statistics (ONS).
Economists polled by Reuters had expected the consumer price index to fall to 3% from 3.4% in the 12 months to December.
Core inflation, which excludes energy, food, alcohol and tobacco, was 3.1% in January, down from 3.2% in December.
In comments on X, ONS chief economist Grant Pfitzner said the decline in inflation to its lowest annual level since March 2025 was partly due to lower petrol prices.
“Airfares were another factor in the decline this month, with prices falling following December’s rise. Lower food prices also contributed to lower prices, particularly for bread, cereals and meat, which were partially offset by hotel accommodation and takeaway costs,” he said.
sterling The exchange rate was flat against the dollar at $1.3562, reflecting the expected data.
The Bank of England will closely analyze the data and look for further signs that it believes inflation will fall closer to the central bank’s target of 2% by April.
British jobs and wages data released on Tuesday gave the BoE further signs of labor market weakness and easing inflationary pressures, with the unemployment rate rising to a five-year high of 5.2% in December. Annual wage growth, a key inflation indicator closely monitored by the central bank, slowed in the final three months of 2025.
Growth data released last week showed the economy grew just 0.1% in the fourth quarter, continuing a broad slowdown. The release of Purchasing Managers’ Index (PMI) data this Friday will provide another insight into the country’s economic activity.
Economists expect the latest set of data could prompt the BoE to lower its benchmark interest rate, currently at 3.75%, at its next meeting in March.
“Sticky inflation has been the UK’s Achilles heel for many years, requiring the Bank of England to keep interest rates capped, but it appears we are finally turning a corner,” Zara Noakes, global market analyst at JPMorgan Asset Management, said in emailed comments on Wednesday.
“Today’s data showed that headline inflation has fallen significantly and there is widespread deflation across sectors. Importantly, headline inflation could move closer to the 2% target by April and this progress should continue,” he added.
“The recent modest rise in wage growth will also help contain vital services inflation, which has been a long-standing thorn in the Bank of England’s side,” Noakes said, adding that the central bank likely has room to cut rates by another 25 basis points before reaching neutral rates.
“Based on the latest set of employment data, we expect these cuts to be brought forward,” he said.
Danny Hewson, head of financial analysis at AJ Bell, said in emailed comments on Tuesday that the bleak picture painted by recent UK growth data and Tuesday’s evidence of a lackluster jobs market has increased the likelihood that the BoE will cut rates at its next meeting in March.
“Expectations have also increased that interest rates could reach at least 3% by the end of the year,” Hewson added.
