Inflation falls to 3% – industry reaction

UK inflation fell to 3% in January, down from 3.4% in December, according to the latest data from the Office for National Statistics (ONS). This was the lowest inflation figure since March last year.

The change was partly driven by lower fuel prices, lower airfares and lower food prices. Core CPI (CPI excluding energy, food, alcohol and tobacco) rose by 3.1% in the 12 months to January, down from 3.2% in December.

Commenting on inflation figures for January, ONS Chief Economist Grant Fitzner said “Inflation fell markedly in January to its lowest annual rate since March last year, driven partly by a decrease in petrol prices.

“Airfares were another downward driver this month with prices dropping back following the increase in December. Lower food prices also helped push the rate down, particularly for bread & cereals and meat. These were partially offset by the cost of hotel stays and takeaways.

“The cost of raw materials for businesses fell over the past year, driven by lower crude oil prices, while the increase in the cost of goods leaving factories slowed.”

Ben Mitchell, Director of Savings at Chetwood Bank, said “CPI day is often treated as a headline about prices, but for savers it’s really about value. When inflation changes, it alters the real return people earn on their cash, and that can make a massive difference to households in the long term.

“Over the past few years, many households have become far more engaged with their savings as rates have improved. The latest figures are a useful prompt to check whether that engagement has translated into action. Large sums still sit in accounts paying minimal interest, and even a small gap in rate can make a noticeable difference over time.

“In the current environment, the fundamentals matter: understand what your money is earning, compare providers rather than defaulting to your main bank, and think carefully about the balance between access and return. Inflation may be easing compared to previous highs, but it remains a factor in financial planning – and savers who review their position regularly are best placed to protect the real value of their money.”

Neil Rudge, Chief Banking Officer for Commercial at Shawbrook, said “Inflation’s retreat towards 3% reinforces expectations that we are on track to reach the Bank of England’s 2% target in the coming months. For SMEs, this isn’t simply a positive headline – it marks a potential turning point from short term cost management back towards structured growth planning.

“Over the past two years, many businesses have had to prioritise resilience, managing input cost volatility and protecting margins. Greater price stability gives leadership teams the confidence to plan further ahead, revisit deferred investment decisions and model expansion with a clearer view of future costs. It also gives the Monetary Policy Committee more room to consider how quickly borrowing conditions can normalise.

“However, many businesses remain in a holding pattern. They are waiting for the combination of sustained inflation stability and a tangible reduction in borrowing costs before fully committing to major investment decisions. That blend of predictability and affordability will be key to unlocking the next phase of growth. The businesses that are best placed to capitalise on this backdrop will be those with a clear strategy and access to funding structures that match their growth profile. In a more stable environment, the quality and flexibility of financial support becomes just as important as the headline cost of capital.

“If we continue to see inflation trend downward and rates begin to ease in a measured way, 2026 has the potential to mark the start of a more confident and sustained investment cycle for UK growth businesses.”

George Lagarias, Chief Economist at Forvis Mazars said “Gravity is finally settling in. An economy of sluggish growth, climbing unemployment and softer wage growth, in the eye of a global trade disruption, has absolutely zero reason to be consistently inflationary. The Bank of England still waited for proof and now it has it. We would expect to see faster rate cuts going forward from this point on.”

Just Mortgages is one of the largest mortgage brokers in the UK, with more than 650 advisers working across both employed and self-employed divisions. It is part of Spicerhaart, the UK’s largest independent estate agency and property services group.

John Phillips, CEO of Just Mortgages and Spicerhaart, said “It’s positive to see inflation rebound from its seasonal blip and return to its downward trajectory. While still higher than the 2% target, inflation seems to be performing as the central bank expects. All eyes are now on next month’s MPC decision as the central bank responds to this news, as well as the recent rise in unemployment and sluggish economic growth. While opinion is still split on how far cuts will go this year, there is increasing optimism around a cut in March, which would be great news for borrowers.

“January provided a strong start to the year and that has continued into February with robust buyer registrations and increasing demand for both valuations and mortgage appointments. Even with half-term disruptions, we’re looking at a really positive month as buyers get plans back on track – buoyed by high levels of product choice and continued innovation. As this momentum continues, brokers play a critical role in demonstrating to new and potential borrowers what the market has to offer, leveraging their deep knowledge and partnerships with a broad range of lenders to help clients achieve their ambitions.”

Anna Leach, Chief Economist at the Institute of Directors, said “This expected decline in inflation marks the start of a more benign inflationary trend for the UK. Today’s figures bring CPI back into the Bank of England’s target range for the first time in 10 months. With the unemployment reaching 5.2% – which is the highest since 2015 when you exclude the pandemic – today’s inflation number should help incline minds at the Bank of England towards a rate cut in March.

“Inflation is set to fall rapidly in the coming months, stabilising costs for households and supporting real household incomes. This, alongside further falls in interest rates, may finally shift households into spending, giving the economy some much needed support. However, the outlook for the labour market is more concerning. Rising unemployment – particularly among young people – may yet keep the breaks on the economy.”