UK inflation falls to 3% in Jan, raising BoE cut odds
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- Office for National Statistics reported that UK inflation fell to 3% in January, down from 3.4% in December, the lowest annual rate since March 2025.
- Grant Fitzner of the ONS said the decline was driven partly by lower petrol prices and a drop in airfares after a December surge.
- Bank of England currently holds its key interest rate at 3.75%, and the inflation slowdown makes a March rate cut increasingly probable.
- Simon French, chief economist at Panmure Liberum, estimated an 80% chance the Bank will cut rates in March, noting a narrow vote split at the previous meeting.
- Rachel Reeves announced £150 energy bill relief, a rail fare freeze, and frozen prescription fees as part of the government’s cost‑of‑living package.
- British Retail Consortium highlighted heavy discounting on clothing, footwear and furniture and price falls in staples such as bread, cereals and rice, helping household finances.
- Institute for Chartered Accountants of England and Wales warned that rising minimum wages, higher national insurance contributions and the Employment Rights Act could pressure future price growth despite the current dip.
Why it matters: The 3% inflation rate eases household cost pressures on fuel, food and travel while raising the odds of a Bank of England rate cut that could lower borrowing costs, but retailers and policymakers warn that higher wages, taxes and regulatory costs may reignite price rises, affecting consumers and businesses alike.
