Closing post
Time to wrap up….
City investors are betting on a cut to UK interest rates next month, after inflation fell to its lowest level in 10 months this morning.
A March rate cut is now seen as an 80% chance by the money markets, after CPI inflation dropped to 3% in January.
The slowdown was in line with a majority of City economists’ forecasts and marks the lowest level since March 2025.
The Office for National Statistics (ONS) said that falls in petrol prices, air fares and food had driven the drop.
In a welcome boost for households’ shopping budgets, the rise in prices for food and non-alcoholic drinks slowed sharply to 3.6% in the year to January, down from 4.5% in December, and reaching a nine-month low.
Petrol and diesel prices fell by 2.2% over the year compared with a 0.9% rise last year. The average price of petrol fell by 3.1p a litre between December and January to stand at 133.2p a litre, while diesel fell by 3.2p to stand at 142.5p a litre.
Several economists predicted the fall in inflation, after a rise in unemployment yesterday, would nudge the Bank of England into cutting borrowing costs at its next meeting.
Others, though, suspect the Bank may wait until April, with services inflation still looking sticky.
Seperate data showed that house price inflation, and rising rents, have slowed, with property prices falling in London, particularly in inner districts of the capital.
Wall Street’s main share indexes have opened higher, supported by gains in technology stocks as the AI worries that hit the sector in recent sessions ease.
The Dow Jones Industrial Average is up 123 points or 0.25% at 49,657.15 points in eary trading.
The broader S&P 500 share index gained 0.2% and the tech-focused Nasdaq Composite rose by 0.28%.
The oil price has risen today, threatening to undermine some of the progress against inflation.
Brent crude is up 2.6% at 69.20 per barrel, hitting its highest level in almost a week.
Oil rose as the talks in Geneve between Russia and Ukraine fail to yield any agreement, yet.
Oxford Economics UK: Inflation will fall sharply in April, before drifting higher
The battle to get inflation in the UK sustainably down to the Bank of England’s 2% target may not be won for some time….
Oxford Economics, the consultancy, have slightly raised their forecasts for UK inflation this year and in 2027.
They do expect price pressures to ease this spring, but then see inflation picking up again. As a result, they now expect the CPI measure of inflation to average 2.6% this year and next year, up from 2.3% and 2.5% previously forecast.
Edward Allenby, senior UK economist at Oxford Economics, explains:
Looking ahead, several factors should pull headline inflation materially lower in the near term. We expect a combination of smaller once-a-year rises in index-linked and regulated prices, a substantial fall in the energy price cap, and the impact of policy measures from the 2025 Budget to drag inflation close to 2% in April.
However, we think there’s a good chance that inflation edges higher again from H2 2026, with sticky pay growth likely to prevent services inflation from cooling significantly. The path for inflation this year is likely to be a little stronger than we previously forecast. This is partly due to us factoring in new regulatory price announcements over the past month, some of which have been slightly higher than anticipated.
Meanwhile, the Office for National Statistics increased the weight assigned to services prices, which boosts headline inflation. Incorporating these changes into our forecast means we now see CPI inflation averaging 2.6% this year and next, up from 2.3% and 2.5% previously.
Back in the City, Vodafone’s shares have hit a three and a half-year high after it announced the sale of its stake in its Dutch joint venture.
Vodafone is selling its 50% stake in Dutch telecom company VodafoneZiggo to Liberty Global plc for €1.0bn.
Vodafone is also getting a 10% stake in a new company, to be called '“Ziggo Group”, which will own both VodafoneZiggo and Liberty Global’s Belgian subsidiary, Telenet Group. Liberty Global plans to list Ziggo Group on the Euronext market in Amsterdam in 2027.
Margherita Della Valle, chief executive of Vodafone Group, says:
“We’re pleased to have agreed the sale of our 50% share in VodafoneZiggo at an attractive valuation. This transaction delivers €1 billion in cash to Vodafone, and we have the potential for further value creation through our 10% stake in Ziggo Group, a business with greater scale.”
Vodafone’s shares rose as high as 120p, the highest since August 2022, after the deal was announced, helping to keep the FTSE 100 at record levels today.
Over in the US, orders for durable goods such as household appliances, automobiles and furniture, have dropped.
New orders for manufactured durable goods decreased by 1.4%, the US Census Bureau has announced, due to a drop in orders for transportation equipment.
That follows a 5.4% increase in November.
The US Census Bureau says:
Excluding transportation, new orders increased 0.9%. Excluding defense, new orders decreased 2.5%. Transportation equipment, also down two of the last three months, drove the decrease, $6.4 billion or 5.3% to $113.5 billion.
Q&A: UK inflation
PA Media have written a handy explainer about today’s inflation report:
What is inflation?
Inflation is the term used to describe the rising price of goods and services.
The inflation rate refers to how quickly prices are going up.
January’s inflation rate of 3% means if an item cost £100 a year ago, it would now cost £103.
It is lower than the 3.4% rate recorded in December, meaning that prices are still rising but at a slower rate than they had been before.
What made inflation fall?
Official statisticians said the falling price of petrol and diesel was the biggest single downward drag on inflation in January.
The average price of petrol fell by 3.1p per litre between December 2025 and January 2026 and the price of diesel slid 3.2p per litre, the ONS said.
It also highlighted that a drop in airfares also helped bring inflation down.
The cost of air travel typically drops in January as airlines launch sales and discounts, but prices plunged by 26.5% in January compared with the previous month in a much sharper drop than usual.
Food and non-alcoholic drink prices were also lower month-on-month, with bread and cereals among those dropping in price.
Meanwhile, butter prices were up 1.4% for the month after a sharp slowdown from 8.9% in December, while recent coffee price increases also slowed sharply.
Is inflation rising in any areas?
The decrease in broad inflation in January does not mean that price rises are slowing for all goods and services.
Wednesday’s figures showed that hotels and other accommodation costs swung higher in January, rising by 0.4% in the month after declining in December.
A number of other prices linked to leisure and hospitality also accelerated, amid recent warnings from the sector over high labour costs and impending tax rises.
Cinema, theatre and concert tickets increased by 10.2% in January, jumping from a 3.7% rise a month earlier.
Will inflation keep going down?
Economists have predicted that inflation will continue to drop in the next few months, with a particular fall in April.
James Smith, developed markets economist at ING, said inflation is on track to fall as low as 1.9% in April.
This will be partly linked to Government support on energy bills announced in the autumn budget, as well as less sharp rises to water bills.
This inflation level would also bring CPI inflation below the 2% target rate set by the Government and the Bank of England.
Inflation is, however, then expected to tick slightly higher again later this year before settling around 2% for the long term.
Matt Swannell, chief economic adviser to the EY Item Club, said:
“Inflation is likely to drift up again from the second half of 2026, with sticky pay growth likely to stop services inflation from softening materially.”
What does it mean for interest rates?
The UK’s base interest rate currently sits at 3.75% after steady reductions over the past year and a half, which have brought it down from a peak of 5.25%.
Earlier this month, the Bank of England’s nine-strong rate-setting committee voted to hold rates at 3.75% but said future cuts were “likely”.
Elevated interest rates are typically used in order to bring inflation down, but they can be cut in a bid to stop inflation dropping too sharply or to stimulate economic growth.
The latest slowdown in inflation, and predictions it will fall below the 2% target, come amid a backdrop of rising unemployment and modest growth.
Economists are therefore widely predicting the rates will be cut at the Bank’s meeting next month.
Yael Selfin, chief economist at KPMG UK, said:
“Today’s inflation data will likely prompt the Bank of England to lower interest rates next month.”
Ms Selfin predicted the Bank will cut interest rates three times before the end of the year to 3%.
A number of other economists, such as ING’s Mr Smith, have predicted two cuts, with one in the summer as well as the expected March cut, to take rates down to 3.25%.
Morgan Stanley economist Bruna Skarica has described today’s UK inflation report as ‘messy’, telling clients:
Headline inflation is down by 40bp, meeting consensus and our expectations, aided by a weak food inflation print. Core inflation is at its lowest since September 2021.
That said, this was a messy print – live music, hotels, hospital services and car insurance came in stronger than we expected, but the first two categories are very volatile, and the second two look like a one-off level shift.
All in all, the direction of travel is down, and we stick with our call for a March cut. But for more easing thereafter, (underlying) services inflation ought to start subsiding from the next inflation print.
Starmer: Falling inflation eases burden
Sir Keir Starmer said inflation coming down is “not just a statistic” but something that will affect everyone.
Speaking during a visit to South Wales, the prime minister said:
“You may have seen this morning that inflation has come down again now to 3% and it’s scheduled to come down further.
That will affect all of you, because that’s not just a statistic.
That is how much it costs to do things - when you’re in the supermarket, when you’re filling up with petrol. All of these things are affected by inflation, and as we’re bringing it down, it eases the burden on people.”
Starmer added he was “deeply conscious” that most people in Wales will cite the cost of living as their main concern.
House prices falling in London
House prices are falling in London, the latest UK House Price Index (HPI) shows.
The Office for National Statistics has reported that prices fell by 1.0% in the capital over the 12 months to December 2025, up from a 0.7% fall in November.
Prices fell by 4.6% for inner London boroughs in December, Bloomberg reports, the biggest drop since the global financial crisis.
ONS data shows that average house prices fell by 14.8% annually in the City of Westminster, by 11.5% in Kensington and Chelsea, and by 11.1% in Camden, the three most expensive parts of London.
House prices also fell 9.5% annually in Hammersmith and Fulham by 10.9% in Tower Hamlets.
Jonathan Hopper, CEO of Garrington Property Finders, says:
“London’s softer performance is also the product of stretched affordability, higher borrowing costs and more cautious sentiment at the upper end of the market. The capital’s more pressured labour market adds another headwind, but it is part of a broader picture rather than the sole cause.
“For much of the past decade, the South pulled ahead almost by default. What we are seeing now is a rebalancing, with demand holding up well in northern England and the devolved nations thanks to attractive relative value and stronger local economies that help buyers feel secure enough to commit to a purchase.
The exodus of workers out of London during the Covid-19 pandemic, and the government’s new mansion tax on homes worth more than £2m have booth also weighed on the capitals’ property market.
Elsewhere, average house prices increased to £292,000 (1.7%) in England, £215,000 (5.0%) in Wales, and £191,000 (4.9%) in Scotland, in the 12 months to December 2025.
The North East was the English region with the highest house price inflation, at 4.6%, followed by the North West at 4.5%.
Updated
The FTSE 100 is continuing to romp higher.
The blue-chip share index is now up 114 points, or 1.1%, at a new intraday record high of 10,670 points.
Copper producer Antofagasta (+4.5%) is now the top riser, a day after reporting a 53% jump in profits for 2025 thanks to rising metal prices.
Energy price cap tipped to fall in April
Energy bills are set to fall in April, consultancy Cornwall Insight has confirmed, after Rachel Reeves slashed the policy costs paid for through bills.
Cornwall has predicted that bills will tumble by an average of almost £117 a year from April, following the Chancellor’s decision to shift the levies used to support renewable energy projects into general taxation, and scrap a bill payer funded energy efficiency scheme.
As Reeves said this morning, this will knock £150 off bills.
And Cornwall now estimate that the price cap will fall to an average of £1,641 a year for a typical dual fuel household from April, down from £1,758 a year at present.
That will help push down inflation in April, which is why the Bank of England expects CPI to drop to its 2% target.
Looking back at UK inflation, economist Kallum Pickering of stock broker Peel Hunt says here is a “clear risk” that the Bank of England has fallen behind the curve by not cutting rates faster.
That means it may have to cut borrowing costs more rapidly than the two rate reductions expected by the City this year, Pickering suggests.
Clear downward trend in UK headline inflation towards the BoE's 2% target. Looking at annualised data, which gives a better measure of current price pressures, the BoE is now undershooting its target. Given known lags with monetary policy, the clear risk now is that the bank has… pic.twitter.com/hcG066CGBd
— Kallum Pickering (@KallumPickering) February 18, 2026
Updated
Rent and house price inflation slows
Just in: Rent and house price growth have both slowed across the UK.
The ONS has reported that average private rents increased by 3.5%, to £1,367 per month, in the 12 months to January 2026, down from 4% in December 2025.
Average rents increased by 3,5% in England, 5.8% in Wales, 2.6% in Scotland, and 5.6% in Northern Ireland.
Within England, private rents annual inflation was highest in the North East (8.0%), and lowest in London (1.1%), in the 12 months to January 2026.
Rental growth slowed by 3.5%, to £1,367, in the 12 months to January 2026 but remains an increasing financial drain. The North East reported the highest private rental annual inflation, up 8.0% while stretched London grew only 1.1% in the 12 months to January 2026 @ONS pic.twitter.com/5CIlzK1wdR
— Emma Fildes (@emmafildes) February 18, 2026
Annual house price inflation slowed too – to 2.4% in the 12 months to December 2025, down from 2.8% in November.
Updated
Raspberry Pi shares soar again on hopes of AI OpenClaw boost
Back in the City, shares in UK tech firm Raspberry Pi are soaring for the third day running.
Raspberry Pi, which makes cheap, simple-to-use durable minicomputers, are up 21% this morning. That follows a 7.5% rise on Monday, and a 36% surge on Tuesday.
Having been created to inspire a generation of child programmers, by providing a cheap piece of hardware to code with, Raspberry Pi is now caught up in speculation that it could be a winner from the AI boom.
The theory is that Raspberry Pi’s low-cost computers are ideal for running OpenClaw, a popular AI personal assistant.
OpenClaw, previously known as Moltbot, and Clawdbot, is billed as “the AI that actually does things”, such as managing email or calendar applications, through a chat app such as WhatsApp or Telegram.
One issue, though, is that to do this OpenClaw needs access to a user’s accounts and their credentials, creating security fears (The Register has details here).
That prompted some users to buy new Apple Mac minis to run the AI agent on – but Raspberry Pi’s system is seen as a more affordable alternative.
Technology researcher Andrew Fisher has explained here how he got OpenClaw running on a simple Raspberry Pi.
This post on X, arguing why Raspberry Pi should benefit from the Openclaw boom, has been credited with pushing its shares higher this week.
Fun Trade Idea: Long $RPI (Raspberry Pi)
— Serenity (@aleabitoreddit) February 16, 2026
Reason: 🦞 Openclaw / Picoclaw / Nanobot + Hoarding.
Everyone has been openly hoarding Apple Mac Minis and were long Apple.
But $APPL is already a $3.7T+ company. Product mass-buying won't make a dent.
Raspberry Pi, however, is a… https://t.co/yRKh37HQ5n pic.twitter.com/IH8wXsCctW
But, don’t forget those security concerns.
Heather Adkins, VP of security engineering at Google Cloud, has urged people to avoid installing the agentic AI tool:
My threat model is not your threat model, but it should be. Don’t run Clawdbot. https://t.co/FOUEJCFYcD
— Heather Adkins - Ꜻ - Spes consilium non est (@argvee) January 26, 2026
Updated
But rate cut might not come until April
Not every economists expects a rate cut in March, though.
Ellie Henderson of Investec reckons the BoE’s monetary policy committee will hold off cutting until April.
Henderson points out that the Bank had expected inflation to drop to 2.9% in January, so today’s reading of 3% is slightly higher than it forecast:
For now though, inflation at 3.0% is still some way above the Bank of England’s 2.0% target, meaning that caution should still prevail when it comes to loosening policy further. On the economic data available to us thus far, our base case remains that the next cut will not be until April, with the fact that today’s numbers exceeded the Bank of England projection a reason to support that call.
However the risk of a March cut has certainly risen over the past month or so, not least because it seems as if there are more dovish voices on the committee than we previously thought. We next look to retail sales data for January, and ‘flash’ PMIs for February at the end of the week to provide a more rounded view of the health of the UK economy and the implications that has for price pressures.
Debapratim De, director of economic research at Deloitte, is also in the April camp, saying:
“The sharp slowing of price rises in January is consistent with expectations of inflation plummeting over the coming months. A substantial reduction in energy bills, much slower rises in regulated prices compared to last year, and a moderation in food price rises are set to bring headline inflation at or close to the Bank of England’s 2% target in April.
“This, alongside a softening labour market, should create room for further interest rate cuts. Recent MPC voting patterns and today’s data point to an earlier easing than markets foresee. We expect two 25-basis-point cuts between now and autumn, with the first cut coming in April.”
Professor Costas Milas, of the University of Liverpool’s Management School, argues that the case for a March rate cut is ‘not that straightforward’, telling us:
We might as well trust the forecasting instincts of the public which predicted 2. 8% two years ago (compared to the poor 2.3% forecast of the BoE).
When I decompose inflation to its drivers, I find that the latest cuts in Bank Rate are unfortunately keeping inflation higher than it should be.
Therefore, I agree with BoE’s Chef Economist Huw Pill who noted that we “need to retain some restrictiveness in the stance of monetary policy until that process of disinflation is complete”. In other words, we should wait to see a drop in inflation closer to 2.5% before the MPC cuts Bank Rate further. The next inflation reading is on the 25th of March, that is, after the MPC’s March decision (on the 19th of March).
Updated
Economists predict BoE rate cut in March after inflation falls
Many economists are predicting the Bank of England will cut interest rates in March, after seeing inflation fall to 3% this morning.
The money markets now indicate there’s an 86% chance of a rate cut in March (taking Bank rate down from 3.75% to 3.5%), at next month’s meeting.
That’s up from 77% last night, and 65% a week ago.
Yael Selfin, chief economist at KPMG UK, says the fall in inflation in January “paves the path for a March interest rate cut”.
“Today’s inflation data will likely prompt the Bank of England to lower interest rates next month. The MPC will welcome the broad-based fall in inflation, with both headline and underlying measures of inflation easing. Given the favourable inflation outlook, the Bank is expected to cut interest rates three times this year, leaving interest rates at 3% by the end of 2026.
“Headline inflation has gradually eased since last summer and is expected to fall further as food and energy prices drop. The combined impact of the government’s energy bill package and the fall in wholesale gas prices could see household energy bills decrease by around 7% from April. Forward-looking data also points to food prices softening over the coming months, as recent declines in global food prices are passed on to households, with the recent adverse weather episodes across Europe not yet making their mark.
Rob Morgan, chief investment analyst at wealth manager Charles Stanley, predicts at least two interest rate cuts this year:
Another reduction as soon as the March meeting is now firmly on the table, and that’s unlikely to be the end of the matter with one or two further cuts likely as the year progresses.
The Bank’s latest decision highlights just how close the committee already is to moving. The MPC voted 5-4 to hold Bank Rate at 3.75%, far tighter than the widely expected 7–2 split. Notably, long‑time hawk Catherine Mann signalled her position is shifting, acknowledging that new analysis has “moved the appropriate time for a cut closer.” With Governor Bailey’s vote pivotal and Mann softening, the MPC’s balance is clearly tilting toward easing.
The Bank’s updated projections reinforce that shift. It now expects CPI to fall to 2.1% by the second quarter of 2026, down from 2.8% in the previous forecast, driven by lower energy costs and fiscal measures from the Autumn Budget. More strikingly, inflation is projected to dip below target to 1.7% next year and to remain subdued through 2028 – a sharp departure from earlier forecasts that had inflation above target into the 2030s.
TUC general secretary Paul Nowak is urging the Bank to act fast:
“Inflation easing is welcome news for working people.
“And it’s right that the government has reduced the pressure - cutting energy bills, freezing rail fares and prescription charges, and raising the minimum wage.
“But after years of falling living standards millions of families are still struggling to make ends meet.
“With households squeezed there’s less money being spent on the high street - holding back businesses and choking off growth.
“The Bank of England must now act.
“From next month we need a series of quick fire interest rate cuts.
“That would put money back into people’s pockets, give businesses the confidence to invest and help Britain finally move on from a cost-of-living crisis that has dragged on for far too long.”
Updated
ING: Services inflation is proving sticky
Economists at ING are concerned that UK services inflation is looking ‘sticky’.
James Smith, ING’s developed markets economist, explains:
Headline inflation is down from 3.4% to 3.0% in January, largely as expected. It’s a consequence of a seasonal fall in air fares, lower fuel prices and the impact of last year’s private school VAT change dropping out.
Most importantly, though, food inflation is down sharply – from 4.5% to 3.6%. That’s roughly inline with BoE forecasts, but it should help the hawks become a little more relaxed about the upside risks to inflation. A big concern last year was that higher food inflation would spark a much wider and more persistent bout of price pressure. Those concerns now look overblown.
But services inflation was stickier than expected in January. Importantly, that’s not really because of quirks like air fares or holidays. In fact, we calculate that the Bank’s preferred measure of ‘core services’ inflation nudged up from 4.0% to 4.3%, once volatile and indexed items are excluded. Catering – often seen as the archetypal service-sector category, one that’s driven by underlying economic demand – has nudged a little higher over the past couple of months.
Education inflation slowed in January, the ONS reports.
That’s because it’s now a year since the government brought in VAT on private school fees. That lifted education prices in January 2025 onwards, so we’ve now caught up with that effect in the annual inflation basket.
The ONS explains:
Prices in the education division rose by 5.1% in the 12 months to January 2026, down from 7.6% in the 12 months to December 2025. On a monthly basis, prices were unchanged in January 2026, compared with a rise of 2.4% a year ago.
The downward contribution came entirely from private school fees, which rose by 12.7% a year ago after they became subject to Value Added Tax (VAT), and there was no change in price in January 2026.
FTSE 100 hits record high
Britain’s stock market has hit a fresh alltime high at the start of trading in London.
The FTSE 100 index of blue-chip shares has gained 41 points, or 0.4%, to a new intraday. high of 10,597 points, as investors anticipate cuts to UK interest rates this year as inflation eases.
That means it has gained 6.6% so far this year.
Weapons maker BAE Systems is the top riser, up 5% after beating City forecasts with a 12% rise in operating profits for the last year.
Chief executive Charles Woodburn told investors:
“In a new era of defence spending, driven by escalating security challenges, we’re well positioned to provide both the advanced conventional systems and disruptive technologies needed to protect the nations we serve now and into the future,”
Core inflation dropped in January too
Encouragingly, underlying inflation also dropped in January.
Core CPI (which strips out energy, food, alcohol and tobacco) rose by 3.1% in the 12 months to January 2026, down from 3.2% in December 2025.
Goods inflation dropped from 2.2% to 1.6%, while services inflation slipped from 4.5% to 4.4%.
Derrick Dunne, CEO of YOU Asset Management, says this is a ‘crucial’ move in core inflation.
“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.”
Chancellor Rachel Reeves is trying to take the credit for the drop in inflation to 3% in January, saying:
“Cutting the cost of living is my number one priority.
Thanks to the choices we made at the budget we are bringing inflation down, with £150 off energy bills, a freeze in rail fares for the first time in 30 years and prescription fees frozen again.
Our economic plan is the right one, to cut the cost of living, cut the national debt and create the conditions for growth and investment in every part of the country.”
Fact check: The £150 cut to energy bills announced in the budget begins in April, so isn’t a factor behind January’s drop in inflation [it WILL lower inflation in April, though]
And the freeze on NHS prescription charges is for the 2026/27 financial year.
Food inflation lowest since April 2025 after prices fall in January
Food inflation has dropped to its lowest level in nine months, easing the cost of living squeeze on households.
The ONS reports that food and non-alcoholic beverages prices rose by 3.6% in the 12 months to January 2026, down from 4.5% in the 12 months to December 2025
On a monthly basis, food and non-alcoholic beverages prices fell by 0.1% in January 2026, compared with a rise of 0.9% a year ago.
The ONS reports that price fell month-on-month in six food categories, including bread, meat, and dairy products.
bread and cereals – down 0.04 percentage points
meat – down 0.02 percentage points
milk, cheese and eggs – down 0.01 percentage points
food products not elsewhere classified – down 0.01 percentage points
coffee, tea and cocoa – down 0.01 percentage points
mineral waters, soft drinks and juices – down 0.01 percentage points
Dr Liliana Danila, lead economist at The Food and Drink Federation, (FDF), says:
“It’s positive to see a lower rate of food inflation in January, however it still remains a real worry for household budgets and above long-term averages. After many years of rising costs businesses across the supply chain have had their margins eroded, leaving manufacturers particularly susceptible to the supply chain shocks caused by geopolitics or climate change. We’ve previously seen the impact that this can have on inflation, with prices of ingredients like cocoa and coffee skyrocketing, so the UK’s recent extreme wet weather flooding farms is a concern for the year ahead.
“To help stabilise food inflation in the long term and protect shoppers from future price spikes, government must incentivise investment in business resilience.”
Bank of England rate cut now seen as more likely
The chances of an interest rate cut next month have risen this morning, following the news that UK inflation fell to 3% in January.
The money markets are now indicating that a quarter-point rate cut is now an 81.5% chance, up from 77% last night – and around 65% last week.
The Bank of England’s monetary policy committee voted narrowly to leave rates on hold earlier this month, in a 5-4 split, so it only takes one ‘hold’ voter to change their mind.
Scott Gardner, investment strategist at JP Morgan Personal Investing says":
“Inflation fell sharply in January, providing some relief to UK consumers at the start of the year. Prices are clearly moving in the right direction, with closely watched core and services inflation continuing their downward trend from previous months.
“Behind the headline figure, motorists were helped as petrol pump prices continued to decline in January to their lowest level since summer 2021. Food inflation also fell after the Christmas period but is still a key area to watch in 2026 as it accounts for a large part of the UK’s everyday spending. Industry barometers suggest that weekly supermarket shops are still elevated with fresh produce prices rising over the month.
“In theory, this fall in inflation could signal a rate cut from the Bank of England at its March meeting barring any surprises between now and then. The progress made on the inflation front over recent months and clear cooling in the jobs market could encourage policymakers to cut interest rates for a seventh quarter in a row. With that said, the Bank of England will remain vigilant as services inflation remains elevated.
UK factory gate inflation slows as input costs drop
In another encouraging sign, the costs paid by UK factories fell last month.
The Office for National Statistics reports that producer input prices fell by 0.2% in the year to January 2026, down from 0.5% in the year to December 2025.
That was mainly due to cheaper crude oil, where prices fell 23.8% over the past year.
With input costs falling, factories felt less pressure to raise their own prices in response.
Producer output prices (also known as prices at the ‘factory gate’) rose by 2.5% in the year to January 2026, down from 3.1% in the year to December 2025.
ONS chief economist Grant Fitzner says:
“The cost of raw materials for businesses fell over the past year, driven by lower crude oil prices, while the increase in the cost of goods leaving factories slowed.”
How petrol and air fares pushed down inflation
A drop in transport costs helped to push UK inflation down in January.
The ONS reports that prices in the transport division rose by 2.7% in the 12 months to January 2026, down from 4.0% in the 12 months to December.
The largest downward effect came from motor fuels, where the average price of petrol fell by 3.1p per litre between December 2025 and January 2026. That pushed the average price of petrol down to 133.2p per litre in January 2026, down from 137.1p per litre a year earlier.
The second-largest downward effect came from air fares, which tend to rise into December and fall into January, as this chart shows:
The ONS explains:
Whereas the pattern of air fares rising into December and falling into January was less pronounced last year, the index this year followed a more conventional pattern, perhaps because the return flights in December did not fall on Christmas Eve and New Year’s Eve.
The more pronounced rise into December 2025 and fall into January 2026 led to a large upward contribution to the change in the annual rate in December 2025 and a large downward contribution in January 2026.
ONS: Decrease in petrol prices pushed inflation down
Here’s ONS chief economist Grant Fitzner on this morning’s drop in UK inflation:
“Inflation fell markedly in January to its lowest annual rate since March last year, driven partly by a decrease in petrol prices.
“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 & cereals and meat. These were partially offset by the cost of hotel stays and takeaways.
Chart: CPI annual inflation rate lowest since March 2025
On a monthly basis, prices fell by 0.5% in January, the ONS reports.
Transport, and food and non-alcoholic beverages made the largest downward contributions to this monthly change.
UK inflation falls to lowest since March 2025
Newflash: Britain’s inflation rate has dropped to its lowest level in almost a year.
The Consumer Price Index, which measures prices changes across the economy, has dropped to 3.0% in January, the Office for National Statistics reports, in line with City forecasts.
That’s down from 3.4% in December, and the lowest rate of annual inflation since March 2025.
The Consumer Prices Index (CPI) rose by 3.0% in the year to January 2026, down from 3.4% in December 2025.
— Office for National Statistics (ONS) (@ONS) February 18, 2026
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A chunky drop in inflation could pave the way for the Bank of England to cut interest rates next month.
A March rate cut is currently seen as a 77% chance by the money markets, after UK unemployment rose yesterday.
Grant Slade, economist at investment research firm Morningstar, is also forecasting a drop in inflation to 3%:
“We expect tomorrow’s CPI data release to further evidence that price growth in the UK is decelerating. We forecast annual CPI inflation of 3.0% in January 2026, down 0.4 percentage points relative to its prior reading in December.
A modest output gap is forming in the UK, with economic growth slowing in the fourth quarter of last year.
Introduction: UK inflation report in focus
Good morning. We’re about to learn if the UK’s cost 0f living squeeze eased last month.
Inflation data for January is due to be released at 7am, and City economists predict a slowdown in the pace of price rises.
The consumer price index (CPI) is forecast to have dropped to 3% in January, down from 3.4% the previous month, and back towards the Bank of England’s 2% target.
If CPI inflation does fall to 3%, that would be the lowest level since March 2025.
A drop in inflation would be welcome, after the CPI rate rose in December for the first time in five months.
But, a drop in inflation doesn’t mean prices are actually falling, just that they’re rising at a slower rate, compared with a year ago.
Victoria Scholar, head of investment at interactive investor, says,
The sluggish economic backdrop and a cooling labour market (especially wage growth), several measures announced in the Budget and base effects from last April when there was a bump in inflation due to energy prices are all contributing to an easing inflationary picture.
Although month-to-month inflation can be bumpy, these factors are expected to allow inflation to return to the Bank of England’s 2% target by Q2 2026 and probably remain around that level.
Investec Economics economist Ellie Henderson has predicted that food price growth is also likely to have dropped to 4.2%, but warned there was a risk that food inflation was still a “key concern”.
The agenda
7am GMT: UK inflation report for January
9.30am GMT: UK house prices and rents data for December
1.30pm GMT: US housing starts and building permits data
1.30pm GMT: US durable goods orders
