Inflation falls to 3%: Experts respond

The UK inflation rate fell to 3% in the year to January, according to the Office for National Statistics.

The drop had been forecast by economists – the ONStatistics says it was driven in part by the cost of bread, cereal and petrol

It’s a fall from December’s 3.4% rate, but inflation remains above the Bank of England’s 2% target

Chancellor Rachel Reeves says decisions made in the November Budget are bringing down inflation, but shadow chancellor Mel Stride says “families are still feeling the pinch because of labor’s economic mismanagement”

Here, experts respond:

Comment: UK Jan inflation figures signal BoE rate cut and £ pressure

 
Nikos Tzabouras, Senior Market Analyst at Tradu, commented:
 
“Inflation in the United Kingdom cooled to 3%, a ten-month low that signals tangible progress in reining in price pressures and strengthens the case for a March rate cut from the Bank of England. With inflation moderating, unemployment climbing to its highest level since the pandemic, and growth still fragile, the macro backdrop increasingly argues for further policy easing – conditions that can weigh on sterling.

“However, inflation remains elevated and services prices showed persistence with only a marginal moderation, slowing the pace of disinflation. Alongside broader macroeconomic uncertainty complicating the policy path, officials are likely to maintain their cautious stance, even if they cut rates next month. Such restrain can support the pound, especially against the US dollar which faces headwinds from mounting Fed rate cut bets and structural challenges from de-dollarisation trends.”
 

Inflation Figures – UK economy is ‘cooling’ says market analyst

Daniela Hathorn, Senior Market Analyst, Capital.com

“UK inflation eased as expected in January with the headline Consumer Price Index (CPI) rate felling to around 3.0% year-on-year, down from 3.4% in December, marking its lowest level in nearly a year and a sign that price pressures are continuing to soften. Economists had broadly forecast this decline, driven by weaker pricing in services and base effects from last year’s energy and goods price spikes.

However, core CPI came in slightly higher than forecasted despite dropping from the previous month, from 3.2% to 3.1%. Meanwhile, the month-on-month reading came in at -0.6%. The year-on-year figure reflects cumulative increases over the past 12 months, whereas the negative monthly reading is more forward-looking and indicates that underlying price momentum has weakened significantly. In other words, inflation is no longer accelerating and may be entering a clearer disinflation phase, but price levels remain high enough to justify caution.

This slowdown indicates that disinflation is re-establishing itself after a brief uptick late last year. Price growth is still above the Bank of England’s 2% target, but the trend is clearly downward. Combined with other weak indicators, such as slowing wage growth, rising unemployment and very modest GDP growth, the data paints a picture of an economy that is cooling. That pressures household real incomes less than before but also highlights ongoing economic slack.

For the Bank of England, falling inflation strengthens the case for monetary easing. This data has strengthened the case for rate cuts ever further, with markets now pricing in a 77% chance of a cut at the next meeting in March, reflecting the combination of softer inflation, a weakening jobs market and little sign of imminent price pressures.”

Kenny MacAulay, CEO, of Acting Office, a software platform for accountancy firms said:

“Sticky inflation has long been thorn in the side of ambitious companies, raising operating costs and denting margins. This morning’s figures may provide momentary respite but ultimately do not alter the fact that new pressures from AI mean many companies need to fundamentally rethink their business models. Key to this is
 

Commenting on inflation falling to 3%, Daniel Austin, CEO and co-founder at ASK Partners, said: “UK inflation easing back to 3% is a significant step in the right direction, but it doesn’t materially change the “higher for longer” backdrop facing households and property markets. The broader disinflation trend remains intact, yet the journey back to target is unlikely to be linear, which continues to keep confidence fragile among buyers and developers. Mortgage pricing has improved and recent rate cuts are welcome, but it will take time for any meaningful reduction in monthly costs to filter through.

“In property, this is unlikely to shift the entrenched wait-and-see mindset in the mainstream market. Capital will continue to favour structurally resilient, income-led sectors such as build-to-rent, co-living, logistics, self-storage and data centres, where chronic undersupply underpins demand. A clearer, sustained downward path for inflation and rates would be the real catalyst for unlocking stalled projects. Until then, disciplined, income-focused and debt strategies remain a pragmatic way for investors to stay active while carefully managing downside risk.”

Ben Mitchell, Director of Savings at Chetwood Bank, said: “CPI day is often treated as a headline about prices, but for savers it’s really about value. When inflation changes, it alters the real return people earn on their cash, and that can make a massive difference to households in the long term.

“Over the past few years, many households have become far more engaged with their savings as rates have improved. The latest figures are a useful prompt to check whether that engagement has translated into action. Large sums still sit in accounts paying minimal interest, and even a small gap in rate can make a noticeable difference over time.

“In the current environment, the fundamentals matter: understand what your money is earning, compare providers rather than defaulting to your main bank, and think carefully about the balance between access and return. Inflation may be easing compared to previous highs, but it remains a factor in financial planning – and savers who review their position regularly are best placed to protect the real value of their money.”

Chris Beauchamp, Chief Market Analyst at investing and trading platform IG, addressing UK inflation figures.

Rate cuts nailed on as inflation weakens

 
“A month-on-month drop in both headline and core inflation certainly delivers the goods for the UK economy, clearing the way for a fresh rate cutting campaign by the BoE. It looks like Britain, and her embattled government, have managed to come through the summer’s hotter run of inflation, and provides some hope that we can see a sustained improvement in employment and growth figures by year end. Both the PM and the chancellor will hope the news arrives earlier, given the pressure on them both.”

Inflation drops to 3% – Mortgage Advice Bureau reacts

Ben Thompson, Director of Home Moving Strategy, Mortgage Advice Bureau:

“This morning’s drop in inflation to 3% is the ‘green light’ the mortgage market has been waiting for. The Bank of England held its breath earlier this month, but with inflation now cooling faster than expected, the pressure to cut the base rate in March has gone from a simmer to a boiling point. While the market has been stabilising for months, this latest drop is the spark that could ignite a fresh price war among lenders.

“For anyone moving home or looking to remortgage, the landscape has changed overnight. The ever-present ‘mortgage cliff’ is flattening, with those coming off historic lows will find the transition to today’s deals far more manageable than the volatile peaks of last year. Crucially, lower inflation also makes lender ‘stress tests’ easier to pass, handing first time buyers back the borrowing power that has felt out of their grasp for years.

“As the market is now moving at a quick pace, you can’t afford to go it alone. This is where a mortgage broker becomes your go-to. They don’t just find a rate – they have access to exclusive products you can’t find on the high street, and can lock in a better deal the second one drops. When a 0.25% difference can help put more money back into your pockets, having an expert time your homebuying journey is the smartest decision you can make.”

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