UK inflation dropped to a nearly one-year low of 3% in January, signaling a continued easing of price increases. This decrease, down from 3.4% in December, was widely anticipated by economists. While lower inflation suggests a slower rate of price growth, prices are still on the rise. The Office for National Statistics attributed this decline to decreases in petrol and food prices, along with reduced airfares. In 2025, inflation peaked at 3.8% and hit 11.1% in October 2022.
The Bank of England anticipates inflation will approach its 2% target by mid-2026. The recent inflation update has raised expectations of a possible interest rate cut in March, with the current base rate at 3.75%. Experts like Jonathan Moyes and David Hollingworth believe that economic conditions could lead to the first rate cut of 2026.
Notably, petrol and food prices were significant contributors to the decrease in January’s inflation. The average petrol price dropped by 3.1p per liter between December 2025 and January 2026. Food and non-alcoholic drink prices rose by 3.6% in the twelve months leading to January, compared to 4.5% in the previous twelve months.
The Bank of England aims to maintain inflation at 2% by adjusting its central base rate. Higher interest rates can make borrowing more expensive, reducing consumer spending and thereby lowering inflation. Core inflation in January stood at 3.1%, excluding volatile components like energy and food.
The Chancellor emphasized efforts to reduce the cost of living, citing measures such as energy bill reductions and frozen rail fares. The ONS identified key factors driving the inflation decline, including lower petrol prices, reduced airfares, and declining food costs.
Inflation is a measure of how prices for goods and services change over time. The ONS calculates inflation based on a basket of goods and services regularly used by households. When inflation decreases, prices are still rising, but at a slower pace. If prices were to drop, it would indicate deflation, where inflation falls below 0%.