UK inflation cools markedly in January, boosting odds of Bank of England rate cut

The U.K. inflation rate cooled to 3% in January, according to the latest figures from the Office for National Statistics (ONS).

Economists polled by Reuters had expected the consumer price index to fall to 3%, down from 3.4% in the twelve months to December.

Core inflation, excluding energy, food, alcohol, and tobacco, stood at 3.1% in January, down from 3.2% in December.

The data will be closely analysed by the Bank of England as it looks for further signs to confirm its view that the U.K.'s inflation rate will fall close to the central bank's 2% target by April.

U.K. jobs and wage data out Tuesday gave the BOE further signs of weakness in the labor market and an easing of inflationary pressures with the unemployment rate rising to 5.2% in December, the highest level in five years. Annual wage growth, a key inflation metric closely watched by the central bank, weakened in the last three months of 2025.

Growth data released last week showed the wider slowdown continued, with the economy growing a meager 0.1% in the fourth quarter. We'll get another shot of economic activity in the country this coming Friday when purchasing managers' index (PMI) data is released.

Economists expect that the latest batch of data could prompt the BOE to cut its benchmark interest rate, currently at 3.75%, at its next meeting in March.

"The gloomy picture painted by recent U.K. growth figures and today's evidence of a lacklustre jobs market has increased the likelihood that the Bank of England will cut rates at the next meeting in March. It has also increased expectation that rates could reach as low as 3% by the end of the year," Danni Hewson, head of financial analysis at AJ Bell, said in emailed comments Tuesday.

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