UK inflation tumbled to 3% in January, giving a boost to hopes of an early cut in interest rates by the Bank of England.
The drop was in line with a majority of City economists forecasts and marks the lowest level since March 2025.
Inflation peaked last year at 3.8% and most economists expect it to drop back quickly to the Bank’s 2% target this year. The latest figures would allow for a rate cut as early as next month, with Threadneedle Street’s policymakers concerned about the slowing pace of economic growth.
The country’s GDP expanded by only 0.1% in the three months to the end of December, the Office for National Statistics said last week. Unemployment increased to a five-year high of 5.2%, according to official figures covering the same period. Private sector earnings grew by 3.4% over the year to December.
The chancellor, Rachel Reeves, will be cheered by figures showing that the cost of the weekly shop rose at a weaker pace last month, allowing households to benefit from a rise in living standards.
Reeves used the budget in November to cut the cost of living, mainly through reductions in energy bills and rail fares, and the effects of these measures should lead to a further drop in the consumer prices index in April.