UK inflation has fallen to 3.0% in the 12 months to January, down from 3.4% previously and marking its lowest level since March last year. Core inflation has eased to 3.1%, while prices declined by 0.5% on the month, adding to signs that price pressures are continuing to cool.
The slowdown has been driven by lower energy costs, softer goods price inflation and moderating wage growth. Services inflation has also edged down to 4.4%, a closely watched measure that suggests underlying pressures are gradually easing.
With the labour market weakening and growth subdued, expectations are rising that the Bank of England could cut interest rates as soon as March. However, policymakers are likely to look for further consistent evidence of cooling inflation before acting.
Experts are reacting to the latest inflation data below:
Jonathan Raymond, investment manager at Quilter Cheviot:
“Hot on the heels of yesterday’s dire UK labour market print, this morning’s inflation data will be a welcome relief. Headline CPI came in at 3.0% in the 12 months to January, down from 3.4% previously, with a monthly fall of 0.5%. Core inflation – which strips out energy, food, alcohol and tobacco – fell to 3.1%, slightly ahead of expectations of 3.0% but a good sign of softening nonetheless. This brings inflation to its lowest level since March last year and makes the Bank of England’s forecast of a sharp return to target over the coming months seem much more achievable.
“A combination of falling energy costs, easing goods price inflation and moderating wage pressures is helping pull overall inflation lower. Crucially, services inflation, which has proven stubborn for several years and had ticked up once again at the end of last year, also looks to be softening. It came in at 4.4% down from 4.5% previously and, given it has been a component closely watched by the Bank, this will be particularly welcome.
“As the economy barely kept afloat towards the end of last year, and the labour market and wage growth have cooled considerably, the Bank will likely feel increasingly comfortable cutting rates as 2026 progresses. Following a hold at its first interest rate decision of the year, which saw a tight 5-4 vote split, the monetary policy committee is now facing renewed calls for a cut when it next meets in March. Many economists expect a 0.25% reduction next month, followed by another later in the year.
“That said, the Bank will want to see a consistent run of softer data before declaring the battle against inflation won. One-off changes to more volatile elements such as airfares, as well as the remaining fallout of the budget, could still be skewing the numbers somewhat. Importantly, the decision announced at the budget to freeze several “regulated” prices – including energy bills and rail fares – should further support disinflation from April onwards, adding to the downward momentum. Nevertheless, today’s figures mark a step in the right direction.
“If the downward trend continues, the Bank will be under growing pressure to loosen policy to support the economy. However, a rate cut alone may not be enough to meaningfully shift the dial on growth. That said, the latest business surveys offer a glimmer of optimism. January’s PMIs showed a modest pickup across both manufacturing and services, suggesting underlying activity may be stabilising and laying the groundwork for a gradual recovery as the year progresses. Allied to this, lower mortgage rates and some post-budget clarity may help to bring the housing market back to life, providing a much-needed shot in the arm to an important part of the economy.”
Luke Bartholomew, Deputy Chief Economist, at Abderdeen said;
“The drop in inflation back to 3% should clear the way for the Bank of England to cut interest rates in March. Granted services inflation was a tad stronger than expected, and this does play an important role in the Bank’s thinking. But with the labour market data yesterday pointing to ongoing weakness in employment and a further softening in pay growth, most policymakers are likely to look through any short run stickiness in the services data. Indeed, inflation is set to fall further in coming months, falling back to 2% in the near future, which should open up further rate cuts later this year.”
Ben Mitchell, Director of Savings at Chetwood Bank, said:
“CPI day is often treated as a headline about prices, but for savers it’s really about value. When inflation changes, it alters the real return people earn on their cash, and that can make a massive difference to households in the long term.
“Over the past few years, many households have become far more engaged with their savings as rates have improved. The latest figures are a useful prompt to check whether that engagement has translated into action. Large sums still sit in accounts paying minimal interest, and even a small gap in rate can make a noticeable difference over time.
“In the current environment, the fundamentals matter: understand what your money is earning, compare providers rather than defaulting to your main bank, and think carefully about the balance between access and return. Inflation may be easing compared to previous highs, but it remains a factor in financial planning – and savers who review their position regularly are best placed to protect the real value of their money.”
Adam Gilespie, Partner, XPS Group said:
“For defined benefit schemes, the direct immediate impact is limited. Most remain well insulated from inflation movements, with aggregate surpluses of around £220 billion. However, a meaningful fall in inflation alters the future protection offered by LDI strategies.
Without recalibration, schemes risk their inflation hedge slipping – leaving them exposed if price pressures resurface. In a lower‑return environment, keeping inflation and interest rate risks firmly under control is essential, making today’s data another cue for trustees and sponsors to revisit their hedging strategies
For defined contribution, the focus is shifting from inflation to adequacy. Despite price pressures easing, many savers remain behind the curve. Without higher contributions or stronger long‑term returns, the real value of DC pots will keep eroding. Keeping pace now means boosting contributions where possible and ensuring growth assets deliver over time.”
Richard Pike, chief sales and marketing officer at Phoebus Software, commented:
“After December’s surprise hike in inflation, today’s news that inflationary pressures have eased again will come as a welcome relief for households, although with wage growth stagnant, people won’t be feeling much better off.
“With joblessness rising and wage growth falling, the Bank of England has an important decision to make at its next meeting about whether to use monetary policy to give the country an economic boost. There’s a strong case now for a base rate reduction in March, which would help millions of homeowners and stimulate the property market, helping to drive much-needed growth.”
Charlie Ambler, Co-Chief Investment Officer, Partner at wealth management firm Saltus, said:
“While a drop will reassure markets that inflation will follow a downward trajectory over the course of the year, the risk of renewed pressure later in 2026 remains front of mind.
“Markets are likely to interpret a 3% reading as supportive of the current expectation for gradual rate cuts this year, rather than an acceleration of easing. The Bank has signalled that policy will remain cautious and data dependent, particularly as the impact of Autumn Budget measures – including energy bill support from April – feeds through the economy.
“For investors, the message remains one of discipline. Short term movements in headline inflation can shift sentiment, but long term returns are driven by maintaining diversified exposure to quality assets. As the rate cycle slowly turns, opportunities will emerge in rate sensitive sectors and selectively within UK equities, but portfolio positioning should remain aligned to long term objectives rather than short term volatility.”
Mike Ambery, Retirement Savings Director at Standard Life says:
“Today’s inflation data brings some welcome news, with CPI falling to 3% in January – its lowest level since March 2025 and a clear step down from December’s rebound. The slowdown reflects lower airfare and petrol prices, alongside a cooling in food price rises after sharp increases at the end of last year.
“With the Bank of England choosing to hold rates at its most recent meeting, today’s figure – along with yesterday’s labour market data, which highlighted a rise in unemployment alongside a slowdown in wage growth – strengthens the case for a cut in March. This comes particularly against the backdrop of subdued economic growth, with GDP expanding by just 0.1% in the final quarter of last year. However, inflation remains above the 2% target and policymakers are likely to want confidence that the improvement is sustained before moving more quickly.
“For households, today’s easing inflation will bring some relief after several years of price rises and a worrying upward trend across much of 2025. That said, lower inflation doesn’t mean prices are falling – just that they’re rising more slowly – and one month’s data doesn’t guarantee a lasting downward trend. In the near term, borrowers will likely welcome today’s figure and what it means for the prospect of further rate cuts, while those approaching the end of a fixed-rate deal may wish to review their options carefully in light of the changing rate environment.
“For longer-term savers and those planning for retirement, the core message remains unchanged. Even as inflation stabilises, ensuring savings can keep pace with the cost of living over time is crucial. Investing, including through tax-efficient options like pensions, can offer a better chance of maintaining purchasing power and building financial resilience. For those already drawing an income in retirement, having a clear and balanced plan that provides dependable income while offering some protection against inflation remains essential, whatever the short-term economic backdrop.”
George Lagarias, Chief Economist at Forvis Mazars comments:
“Gravity is finally settling in. An economy of sluggish growth, climbing unemployment and softer wage growth, in the eye of a global trade disruption, has absolutely zero reason to be consistently inflationary. The Bank of England still waited for proof and now it has it. We would expect to see faster rate cuts going forward from this point on.”
Derrick Dunne, CEO of YOU Asset Management has commented:
“This is a significant slowdown in the rate of inflation and effectively clears the way for the Bank of England to proceed with rate cuts, especially given the broader picture of faltering GDP growth and labour market weakness.
“Perhaps most crucial in today’s data is that core inflation has now fallen to its lowest level since September 2021. Core inflation has remained stubbornly high for a number of years now and has been one of the main drivers of rate caution from the Monetary Policy Committee in recent decisions.
“Rate cuts are already priced in by markets, but if employment and GDP figures continue to disappoint then we could see rate cut expectations grow. This could come from additional cuts beyond the two forecast in March and June or from larger cuts to get ahead of the economic slowdown.
“For households and businesses this is a positive moment and should herald increasing consumer confidence. It is now incumbent on the Government to ensure it does not change fiscal policy in ways that reignite price rises. But it would seem that the one-off pass through effects of minimum wage hikes, public sector pay increase and National Insurance increases from 2025 are now dissipating.
“Anyone unsure what this could mean for their long-term financial plans should consider consulting with a financial planner.”
Jonathan Moyes, Head of Investment Research, Wealth Club, commented:
“Inflation took a step lower today, but fell short of breaking into the 2% range.
We are going to be hearing a lot about base effects this year. Big inflationary spikes from energy, employers’ national insurance, and the private school fee VAT hike from earlier in 2025 that should roll out of the 12-month window for inflation as we move through 2026. This will have a cooling effect on inflation, and we should see inflation fall back to 2% this year.
On the back of weak employment and wage growth data from yesterday, there would have been many revising their expectations for inflation overnight. Instead, inflation came in bang in line with expectations. The market reaction is expected to be muted as a result.
What does all this mean for the Bank of England? The next meeting is on 19 March. With a deteriorating labour market, weak wages, weak economic growth, and no ugly surprises on inflation, it is likely we will see our first rate cut of 2026. The economy may need several more before it begins to show signs of life. For an embattled government starved of good news, they couldn’t come soon enough.”
Rob Morgan, Chief Investment Analyst at Charles Stanley, Part of Raymond James Wealth Management, comments:
“With growth stuck at stall speed, business investment subdued, and consumers becoming more cautious, the case for the Bank of England to do more of the heavy lifting through monetary policy grows stronger.
UK inflation eased to 3.0% in January 2026, confirming December’s 3.2% reading as a something of a blip. The broader trend now points to price growth gradually returning toward the Bank of England’s 2% target in the coming months, providing some relief for households that have been battling rapidly escalating day-to-today costs.
The stubborn inflationary pressures seen last year are finally receding. Budget‑driven tax rises and a cooling labour market are set to bear down on prices, particularly if wage growth softens further. At the same time, lower rail fares and falling energy prices are set to add to the downward pressure.
Borrowers are set to benefit from receding price rises too. With UK growth still flatlining, policymakers are likely to shift more decisively toward supporting a fragile economy through additional interest rate cuts – a tilt already visible in February’s narrow Monetary Policy Committee (MPC) vote to hold. Emerging cracks evident in the labour market, alongside other weakening economic indicators, only reinforces that view.”
Caitlyn Eastell, Personal Finance Analyst at Moneyfactscompare.co.uk, said:
“Savers have lost almost £1,200 on average in real terms over the past five years, despite savings rates hitting post-2008 highs, as inflation surged to over 40-year peaks and ate away at the value of cash savings. While the top non-ISA savings accounts currently boast higher headline rates, the tax-free interest offered by cash ISAs could leave many savers even better off in real terms, particularly those at risk of breaching their Personal Savings Allowance. However, with inflation set to cool, savers could soon choose from a larger pool of products that offer inflation-busting returns even with potential base rate cuts looming because inflation is falling faster than savings rates.
“Unsurprisingly, the deals that have suffered the biggest blows over the past month are those with shorter fixed terms or variable rates, suggesting that the window to secure competitive rates is closing as providers could already be pricing in future rate cuts. The top long-term ISAs and non-ISAs currently offer around 4.50%, therefore they may become an increasingly attractive option in the fading rate environment, as they guarantee set returns and can help with future planning. However, these deals may not be for everyone, and savers should carefully balance the appeal of certainty against their need for access.”
Danni Hewson, AJ Bell head of financial analysis, comments:
“The latest inflation figures are encouraging, although they effectively turn the clock back to where we were a year ago, before the impact of Rachel Reeves’ first Budget and Donald Trump’s trade skirmishes made their mark.
“For households, it’s important to remember that prices are still going up, it’s just that they’re not going up by as much as they were throughout most of 2025. But with wage growth now cooling, every little fall will really help.
“Digging into today’s numbers it’s everyday costs which are making an impact. Prices at the pump have fallen considerably and airfares have largely reversed the increases which helped push up inflation in December.
“There’s also good news about the weekly shop, with the price of some staples like bread, meat and cheese falling. However, if you’re after the convenience of a takeaway you’ll be paying a bit more.
“For the Bank of England, the latest data could give a green light for an interest rate cut in March, with market expectation for a cut rounding off at 85% after today’s release. The last time members of the MPC met the vote was split 5-4 to hold rates steady versus a cut to 3.5%, and the plethora of recent data should be more than enough to give at least one member a good shove to the other side of the seesaw.
“There’s growing expectation that economic conditions might be in such a way that the Bank can deliver not two but three rate cuts this year, although that’s far from nailed on. The Bank’s rate setters will be acutely aware that service sector inflation is still stubbornly high at 4.3% and January’s headline rate of 3% is slightly above the Bank’s own forecast.”
Laurence Booth, Global Head of Markets, CMC Markets, said:
“Today’s CPI release strengthens the case for further easing, with headline inflation now at its lowest level in nearly a year.
“While services inflation remains relatively firm, the broader direction of travel keeps the Bank of England on course toward its 2% target.
“Sterling has failed to draw support from the release, with GBP/USD holding around 1.3570, as markets focus on the policy implications rather than the headline print.
“Combined with weaker labour market data earlier this week, the latest figures materially increase the likelihood of a March rate cut, with Bank Rate expectations gravitating toward 3.5%.”
Emma Wall, Chief Investment Strategist, Hargreaves Lansdown
“UK inflation has fallen to 3% for the month of January, down from 3.4% the previous month, according to the Office of National Statistics. Lower fuel and airfares helped ease pricing pressures, as did slower inflation for food and non-alcoholic drinks. Core inflation, which excludes the often-volatile prices of food, energy and alcohol also fell on the previous month, as did services inflation, which has been sticky on the last year. These measures moving in tandem suggests that the outlook from here will be lower inflation, and the Bank of England expects inflation to fall to the target of 2% this year. The welcome news comes following yesterday’s weaker jobs data, meaning a March rate cut now looks certain.
“Last time the Monetary Policy Committee met, the vote was split 5-4 to hold rates vs cut them, so the market trajectory is not a surprise – what will be key is the cadence and velocity from here. We expect that the MPC will cut twice this year, having favoured a cautious approach. Markets looking for forward guidance will no doubt place emphasis on the rhetoric from Bank of England Governor, Andrew Bailey, in the press conference following next month’s decision.
“Gilt yields have fallen over recent days, with the 10-year dropping below 4.4% having been above 4.5% at the end of last week. As well as supportive UK data, there is also some contagion from the US, where the 10-year Treasury yield has fallen by nearly 20 basis points since the start of last week.
What does this mean for savers and investors?
“Short-dated Gilt yields are certainly lower than they were a year ago – and should inflation continue to ease, this is supportive of lower rates, which presents opportunities for active traders, or indeed investors who want to lock in higher rates of income now. Lower yields and lower inflation are also broadly supportive for equities, as pricing pressures – particularly energy costs – have weighted on corporates. However, jobs data and economic growth will be key here; any signs of economic weakness could spook markets and cause businesses to put the brakes on expansion, whether that means hiring or spending.
“Savers who can should lock in higher rates of interest now, as fixed term products are likely to quickly reflect the market trajectory. Using a savings platform will help consumers ensure they are getting the best rates on the market from a range of providers.”
Kevin Brown, savings expert at Scottish Friendly, has commented:
“Many households will welcome this morning’s inflation figure of 3%, as it suggests December’s uptick was not the start of a renewed trend upwards.
“It seems now the journey back towards the Bank of England’s 2% target has regained momentum. That matters not only for policymakers considering rate cuts, but for households whose financial planning depends on the direction of prices.
“The key point, however, is that inflation easing is not the same as inflation disappearing. Even at 3%, prices are still rising meaningfully year on year. Compounded over time, that continues to shape the real value of savings.
“For borrowers, this strengthens the case for the Bank of England’s Monetary Policy Committee to trim rates in March. For savers, the picture becomes more nuanced. As inflation falls, interest rates are also likely to continue to ease, which could narrow the window for locking in attractive cash returns.
“Cash provides stability and plays an essential role in short-term planning. But when inflation is persistent, preserving purchasing power over the long term may require looking beyond cash alone. Considering investing can be one way to potentially help savings keep working over time, rather than gradually losing ground.”
