UK inflation leaps to higher-than-expected 3% in January

The U.K.’s inflation rate rose sharply to 3% in January, coming in above analyst expectations, according to data released by the Office for National Statistics (ONS) on Wednesday.

Economists polled by Reuters had expected a reading of 2.8% in the twelve months to January.

Britain’s consumer price index (CPI) fell to a lower-than-expected 2.5% in December, with core price growth also slowing further.

Core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, rose by 3.7% in the 12 months to January, which was up from 3.2% in the previous month and marked the highest rate since April 2024. The core services annual rate rose from 4.4% to 5.0%, the ONS said.

The ONS stated Wednesday that the largest upward contribution to the monthly change in the CPI came from transport and food and non-alcoholic beverages. The largest downward contribution to both came from housing and household services, it noted in a press release.

Responding to the latest data, U.K. Chancellor Rachel Reeves said that delivering economic growth and “getting more money in people’s pockets” were her priorities, while acknowledging that “millions of families are still struggling to make ends meet.”

The British pound was little changed against the dollar following the data release, trading at $1.2615.

The U.K.’s inflation rate had hit a more than three-year low of 1.7% in September, but monthly prices have picked up since on the back of higher fuel costs and services fees rising faster than the price of goods.

Earlier in February, sluggish growth and a recent drop in inflation prompted the Bank of England to make its first interest rate cut of the year, bringing its benchmark rate down to 4.5%.

The central bank signaled further rate trims were coming but noted that higher global energy costs and regulated price changes are expected to push up headline inflation to 3.7% in the third quarter of 2025, “even as underlying domestic inflationary pressures are expected to wane further.” The BOE expects the inflation rate to fall back to the 2% target by 2027.

Along with listing its price growth outlook, the central bank also halved the U.K.’s economic growth forecast from 1.5% to 0.75% this year.