UK inflation fell to 3% in January, fueling hopes of an early cut in interest rates by the Bank of England.
The drop is in line with the majority of city economists’ forecasts and represents the lowest level since March 2025.
According to the Office for National Statistics, petrol prices, air fares and food prices have declined.
Inflation peaked at 3.8% last year and most economists expect it to fall quickly to the bank’s 2% target this year. As Threadneedle Street’s policymakers worry about slowing economic growth, the latest figures could allow for a rate cut as early as next month.
ONS Chief Economist, Grant Fitzner, said that along with petrol prices, “airfare was another driver of decline this month as prices eased in December.
“Lower food prices have also helped lower rates, particularly for bread & cereals and meat. These have been partially offset by the cost of hotel accommodation and takeaways.
“The cost of raw materials for businesses has fallen over the past year, due to lower crude oil prices, which has slowed growth in the cost of goods leaving factories.”
The country’s GDP expanded by just 0.1% in the three months ending December, the Office for National Statistics said last week. Unemployment rose to a five-year high of 5.2%, according to official figures for the same period. Private sector earnings rose 3.4% compared to December.
The chancellor, Rachel Reeves, will be pleased by figures showing that the price of the weekly shop rose at a weak pace last month, suggesting that households could benefit from a rise in living standards.
Reeves used the budget in November to reduce the cost of living, mainly through cuts in fuel bills and rail fares, and the effect of these measures is to lead to a further drop in the consumer price index in April.
Reeves said on Wednesday: “Reducing the cost of living is my number one priority. Thanks to the choices we made in the Budget, we have reduced inflation, a £150 cut on fuel bills, a freeze on rail fares for the first time in 30 years and prescription fees have been frozen again.
“Our economic plan is sound, lowering the cost of living, reducing the national debt and creating the conditions for growth and investment in every region of the country.”
