UK Inflation Drops to 3% in January, Fueling BoE Rate-Cut Bets
UK Inflation Drops to 3% in January, Fueling BoE Rate-Cut Bets
Britain's January inflation slowed to 3%, the lowest in nearly a year, strengthening bets on a March BoE rate cut as services prices stay sticky.
Britain’s inflation rate fell to 3.0% year-on-year in January, the lowest level in nearly a year, reinforcing bets that the Bank of England could move closer to cutting interest rates as early as March, even as sticky services prices signal ongoing domestic pressure.
The moderation was driven by slower increases in transport, food and non-alcoholic drink prices, with airline fares falling sharply after a December surge and contributing to the easing of headline inflation. Core inflation slowed to 3.1% in January, its weakest pace since September 2021, while food price growth cooled to its slowest pace since April 2025, underscoring some broad relief in consumer costs. Yet services inflation edged down only marginally to about 4.4%, a reminder that underlying domestic price dynamics remain a constraint on hopes for a rapid disinflation.
Officials have signaled that inflation would ease toward the 2% target as last year’s jump in utility bills and regulated tariffs drop out of the annual comparison, supporting a gradual path back to target levels. The latest figures keep policymakers mindful of entrenched price dynamics even as the headline print improves and the BoE’s cautious trajectory remains in focus.
Markets have increasingly priced in a higher likelihood of a March rate cut, though the ultimate path for borrowing costs will depend on how quickly domestic price pressures fade and how wage growth evolves in the coming months.
