London, United Kingdom. British inflation fell to its lowest since March last year in January, official data showed, adding to expectations of a Bank of England interest rate cut soon. A measure of underlying price pressures, however, remained relatively strong.
Headline inflation slows
Consumer prices rose by 3.0 per cent in annual terms in January, down from a 3.4 per cent increase in December, the Office for National Statistics said on Wednesday. The slowdown reflected transport, food and non-alcoholic drink prices increasing less quickly.
Most economists polled by Reuters had expected Britain’s headline inflation rate to drop to 3.0 per cent in January. The BoE, which was expecting 2.9 per cent inflation last month, has projected it will fall in April close to its 2 per cent target.
Food and air fares contribute to easing
Food inflation was the weakest since April last year, which the BoE views as important for shaping public expectations about prices more broadly. Airline fares fell sharply on the month after jumping in December.
Core inflation and rate expectations
Core inflation, excluding energy, food, alcoholic beverages and tobacco, rose by 3.1 per cent in January, the least since 2021.
Nicolas Crittenden, an associate economist with the National Institute of Economic and Social Research, said the figures meant the Bank of England would likely cut Bank Rate in the spring, with a further cut later this year as inflation dissipates and unemployment continues to climb gradually.
Interest rate futures put an almost 90 per cent chance on a March rate cut by the BoE, up from around 80 per cent before the data, followed by another in late 2026. Sterling was little changed against the US dollar.
Services inflation remains elevated
Inflation for services, closely watched as a gauge of domestic price pressures, slowed only marginally to 4.4 per cent from 4.5 per cent in December, above Reuters poll expectations of 4.3 per cent.
BoE Chief Economist Huw Pill last week said underlying inflation was settling above target at about 2.5 per cent and that interest rates are still “a little bit too low.”
How do you think the Bank of England should weigh weaker headline inflation against elevated services inflation?
