Britain’s annual inflation rate eased in January as expected, official data showed Wednesday, increasing the likelihood that the Bank of England will cut its benchmark interest rate next month. The Consumer Prices Index (CPI) fell to 3.0 percent in January from 3.4 percent in December, the Office for National Statistics (ONS) reported.
“Inflation fell to its lowest annual rate since March last year, driven partly by a decrease in petrol prices,” said Grant Fitzner, chief economist at the ONS. The figures support the Bank of England’s guidance that inflation is set to move closer to its two-percent target in the coming months, as easing energy costs help offset rising water bills and other elevated expenses.
The BoE left its benchmark rate at 3.75 percent earlier this month but signalled further cuts may be on the horizon. While wage growth in the private sector has slowed, it remains elevated in the public sector, with unemployment hitting a five-year high of 5.2 percent.
Prime Minister Keir Starmer’s Labour government has struggled to revive Britain’s sluggish economy since winning the general election in July 2024, having raised taxes in its two annual budgets. “Thanks to the choices we made at the budget, we are bringing inflation down,” finance minister Rachel Reeves said in response to the data release.
Last week’s official figures showed that the economy grew less than expected in the final quarter of 2025, prompting the BoE to lower its forecasts for UK growth this year and next. The central bank now expects GDP to rise 0.9 percent in 2026 and 1.5 percent in 2027, down from its previous projections of 1.25 percent and 1.6 percent, respectively.
“As the economy barely kept afloat towards the end of last year, and with the labour market and wage growth cooling considerably, the Bank will likely feel increasingly comfortable cutting rates as 2026 progresses,” said Jonathan Raymond, an investment manager at Quilter Cheviot.
AFP
