The UK Office for National Statistics reported that consumer price inflation fell to 3% in the 12 months to January 2026, down from 3.4% in December. This was in line with economist forecasts and represents the lowest reading since March 2025. Core inflation, excluding energy, food, alcohol, and tobacco, also edged down to 3.1% from 3.2%.
The main downward drivers were transport (petrol fell ~3p per litre), airfares (which dropped 26.5% month-on-month in a sharper-than-usual post-Christmas correction), and food prices including bread, cereals, and meat. Offsetting factors included rising hotel costs, cinema and concert ticket prices (up 10.2%), and continued upward pressure on services.
The Bank of England held its base rate at 3.75% in early February in a close 5-4 vote. With inflation now on a clearer downward path and unemployment rising to a five-year high of 5.2%, markets and economists widely expect a rate cut at the March 19 MPC meeting. The BOE had previously forecast inflation would return to its 2% target by April 2026, aided by government energy bill support announced in the November budget.
Economists cautioned that inflation may tick back up in the second half of 2026 due to sticky wage growth and business cost pressures, including employer National Insurance increases and minimum wage rises taking effect in April.