UK Inflation Falls To 3.0% In January, Meeting Expectations

Britain’s annual inflation rate eased in line with expectations in January, official data showed Wednesday, bolstering chances that the Bank of England will cut its benchmark interest rate next month.

The Consumer Prices Index fell to 3.0 percent in January from 3.4 percent in December, the Office for National Statistics said.

“Inflation fell… to its lowest annual rate since March last year, driven partly by a decrease in petrol prices,” said Grant Fitzner, chief economist at the ONS.

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The data reinforces the Bank of England’s guidance that inflation is set to cool towards its two-percent target in the coming months, as easing energy bills help to offset rising water bills and other elevated costs.

The BoE left its benchmark interest rate at 3.75 percent earlier this month but signalled that further cuts were ahead.

While wage growth in Britain has slowed in the private sector, it remains elevated in the public sector, according to official figures, which show UK unemployment at a five-year high of 5.2 percent.

Prime Minister Keir Starmer’s Labour party has struggled to revive Britain’s sluggish economy since winning a general election in July 2024, having raised taxes in its two annual budgets.

“Thanks to the choices we made at the budget we are bringing inflation down,” finance minister Rachel Reeves said in a statement responding the inflation data release.

Official figures last week showed that Britain’s economy grew less than expected in the final quarter of 2025, and the BoE this month cut its forecasts for UK growth this year and next.

The central bank now estimates gross domestic product growth to hit 0.9 percent this year and 1.5 percent in 2027.

It had previously forecast GDP output of 1.25 percent for 2026 and 1.6 percent for next year.

“As the economy barely kept afloat towards the end of last year, and the labour market and wage growth have cooled considerably, the Bank will likely feel increasingly comfortable cutting rates as 2026 progresses,” said Jonathan Raymond, an investment manager at Quilter Cheviot.