UK inflation fell to its lowest level in almost a year in January, offering some relief to households — but underlying price pressures remain stubbornly high, keeping
policymakers cautious.
Official figures released on Wednesday by the Office for National Statistics showed consumer prices rose by 3.0% year-on-year, down from 3.4% in December. This marks the slowest pace of inflation since March last year and was in line with economists’ expectations.
The easing was driven largely by softer increases in transport, food, and non-alcoholic drink prices, which rose less sharply than in previous months.
However, measures closely watched by the Bank of England suggest inflationary pressure has not fully faded. Services inflation — a key indicator of domestic cost pressures — dipped only marginally to 4.4% from 4.5%, remaining above forecasts and highlighting ongoing concerns over wage growth and business costs.
Compared with major economies, Britain continues to experience higher inflation. In January, prices rose by 2.4% in the United States and just 1.7% in the Eurozone, underlining the UK’s slower path back to price stability.
Financial markets reacted calmly to the data, with sterling little changed against the dollar.
Looking ahead, the Bank of England expects inflation to fall sharply in April, nearing its 2% target, as last year’s energy price hikes and regulated tariff increases drop out of annual comparisons. Still, policymakers remain divided.
Investors are widely betting on a quarter-point interest rate cut to 3.5% in March, following a narrow decision to keep rates unchanged in February. Markets are also pricing in another modest cut before the end of 2026, though officials remain wary of cutting too quickly while underlying inflation stays elevated.
The inflation figures arrive against a fragile economic backdrop. Recent ONS data showed Britain’s economy barely grew at the end of 2025, while employment has continued to decline — albeit with tentative signs that the labour market may be stabilising.
For now, falling headline inflation offers some encouragement, but the road back to normal price growth remains uneven.