Britain’s annual inflation rate slowed in January, strengthening expectations that the Bank of England could lower interest rates next month, official data showed Wednesday.
The Consumer Prices Index fell to 3.0 percent in January from 3.4 percent in December, according to the Office for National Statistics (ONS).
Grant Fitzner, chief economist at the ONS, said inflation eased to its lowest annual level since March last year, driven in part by a drop in petrol prices.
The latest figures support the Bank of England’s assessment that inflation is moving closer to its two-percent target, as falling energy costs help offset increases in water bills and other household expenses.
The central bank earlier this month held its benchmark interest rate at 3.75 percent but indicated that further cuts are likely in the months ahead.
Official labour market data show UK unemployment has risen to a five-year high of 5.2 percent. While private-sector wage growth has moderated, pay increases in the public sector remain elevated.
Prime Minister Keir Starmer has faced mounting pressure to revive the sluggish economy since his Labour Party won the July 2024 general election, having introduced tax increases in two consecutive budgets.
Responding to the inflation figures, Finance Minister Rachel Reeves said the government’s fiscal decisions were helping to bring inflation down.
Recent data also showed the economy expanded less than expected in the final quarter of 2025, prompting the Bank of England to downgrade its growth forecasts. The central bank now projects GDP growth of 0.9 percent this year and 1.5 percent in 2027, lower than previous estimates.
Jonathan Raymond, investment manager at Quilter Cheviot, said the cooling labour market and weaker wage growth could give policymakers greater confidence to begin cutting rates as 2026 progresses.
