UK inflation cools markedly in January, boosting odds of Bank of England rate cut

The U.K. inflation rate cooled to 3% in January, according to the latest figures from the Office for National Statistics (ONS).

Economists polled by Reuters had expected the consumer price index to fall to 3%, down from 3.4% in the twelve months to December.

Core inflation, excluding energy, food, alcohol, and tobacco, stood at 3.1% in January, down from 3.2% in December.

The fall in Inflation, to its lowest annual rate since March 2025, was driven partly by a decrease in petrol prices, the ONS' Chief Economist Grant Fitzner said in comments on X.

“Airfares were another downward driver this month with prices dropping back following the increase in December. Lower food prices also helped push the rate down, particularly for bread and cereals and meat. These were partially offset by the cost of hotel stays and takeaways,” he noted.

was flat against the dollar following the as-expected data, at $1.3562.

The data will be closely analysed by the Bank of England as it looks for further signs to confirm its view that inflation will fall close to the central bank's 2% target by April.

U.K. jobs and wage data out Tuesday gave the BOE further signs of weakness in the labor market and an easing of inflationary pressures with the unemployment rate rising to 5.2% in December, the highest level in five years. Annual wage growth, a key inflation metric closely watched by the central bank, weakened in the last three months of 2025.