In January, UK inflation dropped to a 3% level, the lowest in almost a year, showing a continued easing in price increases from the previous month. This decline, down from 3.4% in December, was widely anticipated by economists. It is the lowest inflation rate recorded since March 2025.
The Office for National Statistics (ONS) attributed this decrease to lower petrol and food prices, along with reductions in airfares. Last year, inflation had reached 3.8%, with a peak of 11.1% in October 2022.
The Bank of England foresees inflation approaching its 2% target by mid-2026. Observers speculate that this latest inflation update may prompt another interest rate cut in March. Currently, the base rate stands at 3.75%.
Experts like Jonathan Moyes, Head of Investment Research at Wealth Club, expects the first rate cut of 2026 to occur in March due to various economic factors. David Hollingworth, associate director at L&C Mortgages, also believes that inflation is on a downward trend, potentially leading to further rate cuts to come.
The ONS noted that lower petrol and food prices were significant contributors to the decline in inflation. Petrol prices fell by 3.1p per litre between December 2025 and January 2026. Meanwhile, food and non-alcoholic drink prices rose by 3.6% in the 12 months leading to January 2026, showing a decrease from the 4.5% increase in the previous 12 months.
Core inflation, excluding volatile elements like energy, food, alcohol, and tobacco, was at 3.1% in January, slightly lower than December’s 3.2%.
Chancellor’s statement highlighted efforts to reduce the cost of living through various measures, like energy bill reductions and fare freezes. The ultimate goal is to drive down inflation and create conditions for economic growth.
Grant Fitzner, Chief Economist at the ONS, explained that the decrease in petrol prices, airfares, and certain food items contributed to the lower inflation rate in January.
Inflation data is vital as it reflects changes in the prices of goods and services over time. While a drop in inflation signifies a slower rate of price increases, it does not mean prices are decreasing. The ONS tracks inflation using a “basket of goods” that represents consumer spending patterns.