UK inflation decreased to a nearly one-year low of 3% in January as upward price movements continued to slow down.
The drop to 3% marked the lowest inflation level since March 2025, down from 3.4% in December. This decline was widely anticipated by most economists.
Although inflation has reduced, it does not mean prices have stopped rising; rather, they are increasing at a slower pace. The Office for National Statistics (ONS) attributes this decrease to lower petrol and food prices, alongside a decline in airfares.
Last year, inflation peaked at 3.8%, with the highest point recorded at 11.1% in October 2022. The Bank of England foresees inflation nearing its 2% target by mid-2026.
The latest inflation update has raised expectations for another interest rate cut in March, with the current base rate at 3.75%. Experts predict the first rate cut of 2026 due to a weakening labor market, subdued wages, and modest economic growth.
The ONS reported that lower petrol and food prices were key drivers behind the inflation decrease. Petrol prices fell by 3.1p per liter from December 2025 to January 2026.
Food and non-alcoholic drink prices rose by 3.6% in the 12 months leading to January 2026, a decrease from the 4.5% recorded in the previous 12 months. On a monthly basis, food and non-alcoholic drink prices dipped by 0.1%.
The Bank of England aims for a 2% inflation rate and uses its base rate to regulate it. Higher interest rates make borrowing costlier, reducing disposable income and subsequently curbing demand, leading to lower prices and inflation.
While a higher base rate escalates mortgage payments for many homeowners, the current rate stands at 3.75% after six successive reductions from a peak of 5.25% in August 2023.
Core inflation, excluding volatile elements like energy and food, stood at 3.1% in January, down from 3.2% in December. The Chancellor emphasized the commitment to reducing the cost of living, citing recent measures such as energy bill reductions and rail fare freezes.
The ONS highlighted the main factors contributing to the inflation decrease, including reduced petrol prices and lower food costs, offset by increased expenses for hotel stays and takeaways.
In January, inflation dropped to 3%, aligning with economist expectations. Inflation gauges alterations in goods and services prices over time. When inflation decreases, it signifies that prices are still rising, albeit at a slower pace. A decline below 0% would indicate deflation.
The ONS computes inflation based on a basket of goods and services that mirrors typical household purchases.