UK interest rate cut expected in March after inflation drop

Inflation in the U.K. has fallen to a 10-month low largely on the back of lower food and gas prices

LONDON -- Inflation in the U.K. fell to a 10-month low largely on the back of lower food and gas prices, official figures showed Wednesday, a downward move that has reinforced expectations that the Bank of England will cut interest rates in March.

The Office for National Statistics said the consumer prices index was 3% higher in January than the year before, down from 3.4% in December.

The decline was in line with analysts' expectations and puts inflation well on the path to the central bank's target of 2% over the coming months. When keeping its main interest rate on hold at 3.75% at its last meeting earlier this month, the bank predicted that inflation would be back at target by April.

The further fall in inflation will provide some relief for the Labour government, which has seen its poll ratings fall sharply since it returned to power in July 2024, partly because of cost-of-living pressures.

”Cutting the cost of living is my number one priority," Treasury chief Rachel Reeves said Wednesday.