Britain’s annual inflation rate fell to 3.0 percent in January, down from 3.4 percent in December, according to official figures released Wednesday by the Office for National Statistics (ONS), reinforcing expectations that the Bank of England (BoE) may cut its benchmark interest rate in the near term.
“Inflation fell… to its lowest annual rate since March last year, driven partly by a decrease in petrol prices,” said Grant Fitzner, ONS chief economist. The data aligns with BoE forecasts that inflation will gradually approach its two-percent target as easing energy costs offset rising water bills and other household expenses.
Earlier this month, the BoE kept its benchmark rate at 3.75 percent but indicated that further cuts could be expected as the economy slows. While private sector wage growth has decelerated, public sector wages remain elevated. Unemployment in the UK also rose to a five-year high of 5.2 percent.
Finance Minister Rachel Reeves responded to the data, highlighting government efforts to curb inflation. “Thanks to the choices we made at the budget we are bringing inflation down,” she said.
The inflation report follows disappointing GDP growth figures for the final quarter of 2025. The BoE recently revised its UK growth forecasts down to 0.9 percent for 2026 and 1.5 percent for 2027, compared with previous projections of 1.25 percent and 1.6 percent, respectively.
“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, investment manager at Quilter Cheviot.
