Huge Inflation Fall to 3% Puts Rate Cut Odds On

The Office for National Statistics (ONS) has this morning released UK inflation figures for January 2026.

Hopes were riding high last month and then ‘crashed and burned’ as inflation climbed again by 0.2% to 3.4% pa.  Today was much better news with Consumer Prices Index (CPI) falling 0.4% to 3.0%pa.

Transport inflation fell massively by 1.3% to +2.7% pa increases, driven by oil price falls.  This ‘fuelled’ huge price rise slowdowns in Food (+4.5% pa down to +3.6% pa) and Education (+7.6% pa down to +5.1% pa).

Falls in Price Rise Increase Rate (yes, they are still rising but rises slowing)

• Education down to 5.0% pa rises.
• Alcohol and tobacco down to 4.6% pa rises.
• Housing and household services down to 4.5% pa rises.
• Food and non-alcoholic beverages down to 3.6% pa rises.
• Transport down to 2.7% pa rises.
• Recreation and culture down to 2.6% rises.
• Furniture and household goods down by -0.5% (real falls).

Rises in Prices Increase Rate

• Communication up from 4.2% pa increases to 4.6% pa rises.
• Restaurants and hotels up from 3.8% increases to 4.1% pa rises.
• Health up from 2.1% pa increases to 3.1% pa rises.

Price Rises Remained Level

• Miscellaneous goods and services prices remained level at 2.2% rises.
• Clothing and footwear remained level at 0.0% pa.  That’s clothing prices generally holding or falling.

RPI fell 0.4% pa to 3.8% pa

The old measure of inflation RPI, an arithmetical mean of the average prices of a basket of household spending (rather than the geometric mean for CPI) and still our preferred measure of real inflation went back to where it was in December, falling to 3.8% pa.

Comment

As forecast after last months CPI and RPI increases, we didn’t expect an interest rate cut on 5^th February, but we certainly do now on 19^th March 2026.  Expect mortgage lenders to start lowering their mortgage rate deals sooner rather than later.

Key dates for us all:

• 18 March 2026: Next Federal Reserve FOMC interest rate decision.
• 19 March 2026: Next Bank of England MPC interest rate decision.
• 19 March 2026: Next European Central Bank interest rate decision.
• 25 March 2026: Next ONS inflation report.