UK inflation Jan 2026

The latest data from the Office for National Statistics (ONS) reveals that the U.K. inflation rate has dropped to 3% in January, lower than the expected 3.4% in the twelve months leading up to December. Core inflation, which excludes energy, food, alcohol, and tobacco, stood at 3.1% in January, down from 3.2% in December. This marks the lowest annual rate of inflation since March 2025, driven partly by a decrease in petrol prices.

Grant Fitzner, the Chief Economist at the ONS, attributed the decrease in inflation to lower petrol prices, as well as a drop in airfares following an increase in December. The prices of food items like bread, cereals, and meat also contributed to pushing the inflation rate down. However, the cost of hotel stays and takeaways offset some of these decreases.

The Bank of England will closely analyze this data as it looks for further confirmation that inflation will fall close to the central bank’s 2% target by April. Recent job and wage data also indicate weakness in the labor market, with the unemployment rate rising to 5.2% in December and annual wage growth weakening in the last quarter of 2025.

The economy’s growth has been sluggish, with a meager 0.1% growth in the fourth quarter. Economists predict that this data could lead the Bank of England to consider cutting its benchmark interest rate, currently at 3.75%, at the next meeting in March. Zara Nokes, a global market analyst at J.P. Morgan Asset Management, believes that the decrease in headline inflation and wage growth will help keep services inflation at bay, giving the BOE room to implement rate cuts.

The recent economic indicators and lackluster job market have raised expectations of a rate cut in March, with some analysts predicting rates could reach as low as 3% by the end of the year. Overall, the data suggests a challenging economic environment for the U.K., with the central bank closely monitoring inflation and employment trends to make informed policy decisions.