The UK’s inflation rate has surged to a three-year high of 3% in January, exceeding analyst expectations and prompting renewed calls for interest rate cuts from policymakers.
According to data released by the Office for National Statistics (ONS), core inflation – which excludes volatile energy, food, alcohol, and tobacco prices – rose 3.7% in the 12 months to January, up from 3.2% in the previous month. The largest contributor to this increase was transport and food and non-alcoholic beverages.
The latest reading is above expectations and marks a significant departure from the UK’s inflation rate of 2.5% in December. Economists had forecast a reading of 2.8%.
Inflation has been driven by rising energy costs, with air fares not falling as much as expected during the Christmas period. The cost of food, particularly meat, bread, and cereals, has also increased due to new VAT rules.
The UK Chancellor Rachel Reeves acknowledged that while economic growth is a priority, “millions of families are still struggling to make ends meet.” The British pound was little changed against the dollar following the data release.
The Bank of England’s latest interest rate cut in February followed sluggish growth and a recent drop in inflation. However, the central bank now expects headline inflation to rise to 3.7% in the third quarter of 2025, driven by higher global energy costs and regulated price changes.
Experts say that while the latest inflation jump was expected, it’s a reminder that higher energy prices will continue to push inflation further above target in the coming months. The Bank of England is unlikely to cut interest rates significantly, but may revisit its forecasts if inflation proves more persistent.
Source: https://www.cnbc.com/2025/02/19/uk-inflation-in-january-2025.html