UK inflation fell to 3.0% in January 2026

Woman shopping at a local market buying fresh produce representing UK inflation — (Image credit: Westend61 via Getty Images)

UK inflation fell in the year to January 2026, according to data released this morning (18 February) by the Office for National Statistics (ONS), following an uptick in December 2025.

The headline rate of Consumer Prices Index (CPI) inflation rose by 3.0% in the 12 months to January, down from 3.4% in the month-before period. This was slightly above predictions from Bank of England staff, which had forecast a CPI increase of 2.9%.

Chart showing UK inflation rates from January 2016 to January 2026

While it rose in December, the UK’s inflation rate is trending downwards over time. January’s 3.0% figure marks the slowest annual rate of CPI inflation since March 2025.

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While it expects CPI to grow at around 3% during the first quarter of 2026, Bank of England forecasts currently predict that inflation will fall to 2.1% in April, largely thanks to disinflationary measures included in last year’s Autumn Budget.

The drop in UK inflation in January is expected to support an interest rates cut at the next meeting of the Bank of England’s Monetary Policy Committee (MPC).

“Granted services inflation was a tad stronger than expected, and this does play an important role in the Bank’s thinking,” said Luke Bartholomew, deputy chief economist at asset manager Aberdeen. “But with the labour market data yesterday pointing to ongoing weakness in employment and a further softening in pay growth, most policymakers are likely to look through any short run stickiness in the services data.”

On a monthly basis, CPI fell by 0.5% between December and January.

What pushed UK inflation lower in January?

The biggest disinflationary effects in the year to January came from transport, food and non-alcoholic beverages, and housing and household services.

Chart showing Contributions to change in the CPI annual inflation rate, UK, between December 2025 and January 2026

“Inflation fell markedly in January to its lowest annual rate since March last year, driven partly by a decrease in petrol prices,” said Grant Fitzner, chief economist at ONS.

“Airfares were another downward driver this month with prices dropping back following the increase in December,” Fitzner continued, adding that lower food prices also supported the slowdown in UK inflation over the period.

On the other side of the ledger, health costs and restaurants and hotels were the biggest upward drivers of UK price increases over the period, both contributing 0.03 percentage points to CPI inflation.

What is inflation?

Inflation is an economic metric that measures the rate at which prices are rising within an economy. It is one of the key metrics observed by policymakers, including politicians and, crucially, central bank interest rate-setters, in order to make decisions relating to the economy.

There are various ways of measuring inflation, but the key one is CPI. This is the inflation metric that most economists and policymakers regard as the headline measure of inflation in the UK and worldwide.

Most economists view 2% as the optimal CPI rate for a healthy economy. It implies that prices are rising (which indicates economic growth), but slowly enough not to become unmanageable for business and household budgets.

How does UK inflation impact your money?

Inflation impacts your money both directly and indirectly.

Directly, the rate of inflation reflects the pace at which the price you pay for goods and services increases. Assuming your income doesn’t change, higher rates of inflation will mean you have less purchasing power; your monthly budget may not stretch as far or you may not have as much disposable income left once you’ve paid for your essentials.

Indirectly, it impacts various aspects of the economy that are in turn reflected in your finances. This could include increases in the bills you pay (many utilities, for example, increase annually in line with retail prices index (RPI) inflation) or pay rises from your employer, but most importantly, inflation feeds into interest rates.

Central banks, such as the Bank of England, raise or lower interest rates in order to balance controlled inflation against healthy economic growth. When inflation is running high or expected to rise, policymakers (specifically the MPC) raise interest rates in order to discourage inflation. When economic growth is weak, they lower them in order to stimulate growth.

Interest rates in turn feed into various key components of your personal finances. For example, higher rates mean you’ll likely pay more interest on your mortgage. But at the same time, they also mean you should earn more interest on your savings or cash ISA.

So a drop in UK inflation now could have implications for your finances next time the MPC meets to set interest rates.

Dan is a financial journalist who, prior to joining MoneyWeek, spent five years writing for OPTO, an investment magazine focused on growth and technology stocks, ETFs and thematic investing.

Before becoming a writer, Dan spent six years working in talent acquisition in the tech sector, including for credit scoring start-up ClearScore where he first developed an interest in personal finance.

Dan studied Social Anthropology and Management at Sidney Sussex College and the Judge Business School, Cambridge University. Outside finance, he also enjoys travel writing, and has edited two published travel books.