UK Inflation Falls to 3 Percent, Economists Forecast Interest Rate Cut in Spring

The Office for National Statistics (ONS) on Feb. 18 said that UK inflation decreased to 3 percent in the 12 months to January, down from 3.4 percent in the 12 months to December 2025 and the lowest since March 2025.

ONS Chief Economist Grant Fitzner said in a post on X that the fall in inflation from March of last year was “driven partly by a decrease in petrol prices.”

Fitzer said in a follow-up post that airfares “were another downward driver this month with prices dropping back following the increase in December.”

“Lower food prices also helped push the rate down, particularly for bread and cereals and meat,” he said. “These were partially offset by the cost of hotel stays and takeaways.”

The ONS said that food and non-alcoholic beverages price inflation slowed from 4.5 percent in the 12 months to December 2025 to 3.6 percent in the 12 months to January 2026. Month-on-month, food and non-alcoholic beverages prices fell by 0.1 percent in January, compared with a rise of 0.9 percent one year ago.

Economists say this drop raises the likelihood that the Bank of England will cut interest rates in March from the current rate of 3.75 percent.

Nicolas Crittenden, associate economist at the National Institute of Economic and Social Research, said in a statement that the fall “affirms our view that inflation is heading towards the Bank of England’s 2 percent target.”

“We predict inflation will hit the Bank’s 2 percent target by the second quarter of this year. A large decrease in April is expected due to more stable resets to government administered prices, such as the energy price cap, compared to last year,” Crittenden said.

“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.”

Thomas Pugh, economist at RSM UK, similarly said in a post on LinkedIn that this drop in inflation “will give space for the Bank to cut rates in March and once more in the summer.”

Pugh added that the drop “is just the start,” predicting inflation will be down to the 2 percent target level by the spring.

2 Percent Inflation Target

Speaking to reporters, Chancellor of the Exchequer Rachel Reeves said that budget measures taken in November 2025 “will come into effect in the next couple of months,” which will result in a reduction of 150 pounds ($203) in people’s energy bills, as well as a freeze in prescription charges and rail fares.

“That will take more money off of people’s bills, and that will see further reductions in inflation,” Reeves said. “The Bank of England and the Office of Budget Responsibility are expecting inflation to return to the 2 percent target within the next few months.”

Shadow Chancellor of the Exchequer Mel Stride wrote in a post on X that inflation is still above target “thanks to Labour’s choices.”

“Families are still feeling the pinch because of Labour’s economic mismanagement,” Stride said. “Britain is not being governed—the economy is weaker and working people are paying the price.”

British Prime Minister Keir Starmer said in a post on X that the choices his Labour government has made “means inflation has fallen today to its lowest rate in a year.”

“Lower food and petrol prices are helping ease the pressure on household budgets,” Starmer said. “I know there’s more to do, cutting the cost of living is my number one priority.”