UK consumer price inflation eased to a ten-month low in January on weaker fuel and food costs, raising expectations of an interest rate reduction by the Bank of England.
The consumer price index posted an annual increase of 3.0 percent, the Office for National Statistics reported Wednesday. This was the lowest inflation since March 2025, when it stood at 2.6 percent.
January’s rate came in line with expectations and followed December’s 3.4 percent increase.
Core inflation that excludes prices of energy, food, alcohol and tobacco softened marginally to 3.1 percent in January from 3.2 percent in December.
The ONS said transport, and food and non-alcoholic beverages made the largest downward contributions to the annual inflation.
The annual increase in transport cost eased to 2.7 percent on falling motor fuel prices and air fares. Likewise, food and non-alcoholic beverages prices climbed at a slower pace of 3.6 percent after rising 4.5 percent.
At the same time, services inflation came in at 4.3 percent, moderating from 4.5 percent in the previous month.
On a monthly basis, consumer prices fell 0.5 percent, as expected, reversing a 0.4 percent rise in December.
At the February meeting, the Bank of England retained its benchmark rate at 3.75 percent, which was the lowest since early 2023. The bank has lowered the rate by 150 basis points since August 2024.
The BoE had estimated inflation to fall back to around the 2 percent target from April.
Although food inflation plunged in January, price pressure in the service sector proved stickier, ING economist James Smith said. The economist expects the BoE to cut rates in March and June.
British Chambers of Commerce Research Manager Stuart Morrison said, “A further easing of inflation, to 3% in January, will be cautiously welcomed by businesses.”
Morrison noted that firms will be hoping the data to strengthen the case for another interest rate cut by the Bank of England soon. He said headline figure is only part of the story and inflation concerns among businesses persist.
Businesses are facing huge price pressures which re-squeezing confidence, stalling investment and holding back recruitment, Morrison observed.
In a separate communiqué, the ONS showed that output price inflation eased to 2.5 percent in January from 3.1 percent in December. Meanwhile, input prices dropped 0.2 percent, following a revised rise of 0.5 percent in the prior month.
Month-on-month, output prices remained flat and input prices gained 0.4 percent in January, data showed.
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