- Inflation resumed its cooling trend in January after December’s blip
- Headline CPI rate of 3% turns the clock back 12 months
- Falling prices at the pump and a reversal of airfare increases were largely behind January’s fall
Danni Hewson, AJ Bell head of financial analysis, comments on the latest UK inflation figures:
“The latest inflation figures are encouraging, although they effectively turn the clock back to where we were a year ago, before the impact of Rachel Reeves’ first Budget and Donald Trump’s trade skirmishes made their mark.
“For households, it’s important to remember that prices are still going up, it’s just that they’re not going up by as much as they were throughout most of 2025. But with wage growth now cooling, every little fall will really help.
“Digging into today’s numbers it’s everyday costs which are making an impact. Prices at the pump have fallen considerably and airfares have largely reversed the increases which helped push up inflation in December.
“There’s also good news about the weekly shop, with the price of some staples like bread, meat and cheese falling. However, if you’re after the convenience of a takeaway you’ll be paying a bit more.
“For the Bank of England, the latest data could give a green light for an interest rate cut in March, with market expectation for a cut rounding off at 85% after today’s release. The last time members of the MPC met the vote was split 5-4 to hold rates steady versus a cut to 3.5%, and the plethora of recent data should be more than enough to give at least one member a good shove to the other side of the seesaw.
“There’s growing expectation that economic conditions might be in such a way that the Bank can deliver not two but three rate cuts this year, although that’s far from nailed on. The Bank’s rate setters will be acutely aware that service sector inflation is still stubbornly high at 4.3% and January’s headline rate of 3% is slightly above the Bank’s own forecast.”
