Inflation fell to its lowest level in a year; Stocks will increase

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Inflation fell to its lowest level in a year this morning and reached its slowest pace since March and fueled hopes that the Bank of England will cut interest rates next month.

New data from the National Statistics Agency shows increases in the Consumer Price Index (CPI) – a key measure of inflation – up three percent in the year to January 2026, down from 3.4 percent in December 2025.

Grant Fitzner, chief economist at the ONS, said this was partly driven by petrol and airfare prices, which were stable after a spike in December.

“Lower food prices are also helping to keep the figures down, especially for bread, meat and cereals,” he added.

“This is partially offset by hotel stays and take-home costs.”

This comes after the latest jobs data released on Tuesday also raised hopes of an interest rate cut in March. City officials expect more cuts to stimulate the economy after the unemployment rate rose to a post-pandemic high of 5.2 percent yesterday.

Yael Selfin, chief economist at KPMG UK, said the World Bank may “want to minimize the risk of a labor market downturn and lower interest rates ahead of its next forecast meeting in April”.

But there may be some divisions within the MPC as Bank of England chief economist Huw Pill said last week that interest rates were already “a little too low”.

In its decision in early February, the World Bank’s Monetary Policy Committee voted to keep interest rates at a closer 3.75 percent than anticipated in a 5-4 split.

Although World Bank Governor Andrew Bailey signaled a dovish outlook despite choosing to hold interest rates. Bailey said the chances of further cuts would increase as price growth was expected to “fall back” to the two per cent target in the spring, compared with previous forecasts for 2027.

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