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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
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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
