UK inflation dropped to a nearly one-year low of 3% in January as the pace of price increases continued to slow. This decrease, the lowest since March 2025, contrasts with the 3.4% recorded in December, in line with economists’ expectations.
Despite the decline, prices are still rising, albeit at a reduced rate. Factors contributing to the lower inflation include decreases in petrol and food prices, as well as a decline in airfares, according to the Office for National Statistics (ONS).
Inflation peaked at 3.8% last year, reaching an alarming 11.1% in October 2022. The Bank of England anticipates inflation to approach its 2% target by mid-2026.
Experts forecast a potential interest rate cut in March following the latest inflation update. The current base rate stands at 3.75%. Jonathan Moyes, Head of Investment Research at Wealth Club, suggests the likelihood of the first rate cut of 2026 due to economic indicators. Similarly, David Hollingworth, associate director at L&C Mortgages, emphasizes the possibility of further rate cuts in the near future.
The ONS attributes the decline in inflation to lower petrol and food prices. Notably, petrol prices fell by 3.1p per litre between December 2025 and January 2026. While food and non-alcoholic drink prices rose by 3.6% year-on-year to January 2026, the monthly increase was marginal at 0.1%.
Core inflation, excluding volatile elements like energy and food, stood at 3.1% in January, slightly lower than the 3.2% recorded in December. The Chancellor responded to the inflation news, highlighting efforts to reduce the cost of living through various measures.
In January, inflation dropped to 3%, reflecting a trend expected by economists. It is crucial to understand that a decrease in inflation does not mean prices are static but rather rising at a slower pace. Deflation, on the other hand, occurs when prices decrease, leading to negative inflation.
The ONS monitors inflation based on a basket of goods and services regularly updated to reflect consumer spending patterns.