By Suban Abdulla and William Schomberg
LONDON, Feb 18 (Reuters) – British inflation fell to its lowest since March last year, according to official data that added to expectations of an interest rate cut soon by the Bank of England, even as a measure of underlying price pressures remained strong.
Consumer prices rose by 3.0% in annual terms in January, slowing sharply from a 3.4% increase in December, the Office for National Statistics said on Wednesday, as transport, food and non-alcoholic drink prices increased less quickly.
Most economists polled by Reuters had expected Britain’s headline inflation rate – the highest among the Group of Seven nations – to drop to 3.0% in January. The BoE, which was expecting 2.9% inflation last month, has projected it will fall in April close to its 2% target.
Food inflation – which the BoE sees as key for shaping public expectations about prices more broadly – was the weakest since April last year. Airline fares fell sharply on the month after jumping in December.
Core inflation, excluding energy, food, alcoholic beverages and tobacco, rose by 3.1% in January, the least since 2021.
“Today’s figures mean the Bank of England will likely cut Bank Rate in the spring. We expect a further cut later this year as inflation dissipates and unemployment continues to climb gradually,” Nicolas Crittenden, an associate economist with the National Institute of Economic and Social Research, said.
Interest rate futures put an almost 90% chance on a March rate cut by the BoE – up from around 80% before the data – followed by another in late 2026. Sterling was little changed against the U.S. dollar.
UNDERLYING PRICE PRESSURES PERSIST
Some lingering price pressures remained in Wednesday’s data, which could reinforce the more hawkish members of the BoE’s Monetary Policy Committee.
Inflation for services – closely watched as a gauge of domestic price pressures – slowed only marginally to 4.4% from 4.5% in December, above the Reuters poll expectations of 4.3%.
BoE Chief Economist Huw Pill last week said underlying inflation was settling above target at about 2.5% and that interest rates are still “a little bit too low.”
“The big drop in headline UK inflation in January is a welcome development, but under the hood the data wasn’t quite as convincing as hoped,” said Adam Hoyes, senior asset allocation analyst at Rathbones, a wealth and asset management group.
British inflation – which surpassed 11% in 2022 – has continued to run higher than in the United States and the euro zone where it stood at 2.4% and 1.7% respectively in January.
However, it is expected to slow sharply in April as last year’s rises in utility costs and other government-controlled tariffs fall out of the annual comparison.
Furthermore, Britain’s economy barely grew at the end of 2025. Figures showed on Tuesday that the labour market was still losing jobs although there were some signs of a stabilisation.
Separate data released by the ONS on Wednesday showed factory gate prices rose by 2.5% in the 12 months to January, the slowest increase since June last year and down from 3.1% in December.
(Reporting by Suban Abdulla; Editing by William Schomberg and Toby Chopra)
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