Markets bet on spring rate cut as inflation falls

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• Easing inflation and a cooling labour market have opened the door for further interest rate cuts. Two 25-basis-point cuts are expected between now and autumn, with the first in April.

  80% confidence

• Inflation is expected to decline to the Bank of England's 2% target as soon as April due to falling household energy bills, expiry of last year's tax and regulated price rises from annual comparisons, removal of green levies from energy bills, and Easter timing effects.

  80% confidence

• Lower petrol prices, some reversal of December's erratic rise in airfares inflation, and a sharp slowdown in food price rises played the biggest roles in pushing the CPI measure down.

  80% confidence

• January's decline kicks off a dramatic descent for inflation with falling food prices and lower energy bills – helped by the Chancellor's cut to green levies and April's expected energy price cap reduction – pulling it back to 2% in the spring.

  80% confidence

• Services inflation remains sticky. The January print showed a far smaller drop than expected with services CPI at 4.4% year-on-year. Despite this, headline inflation is expected to decline to near 2% by spring.

  80% confidence

• The sharp slowing of price rises in January is consistent with expectations of inflation plummeting in coming months. Inflation is set to reach or come close to the Bank of England's 2% target in April.

  80% confidence

• There is a danger that inflation does not fall as far as expected or does not remain lower for long. Business surveys suggest underlying cost pressures remain sticky and medium-term inflation expectations are still too high for comfort.

  80% confidence

• The fall in January inflation signals a rapid return to normal inflation in the coming months as the rate of price rises settles close to the 2% target for the first time since before the pandemic.

  80% confidence

• Inflation remains above target thanks to Labour's choices. Families are still feeling the pinch because of Labour's economic mismanagement. Britain is not being governed – the economy is weaker and working people are paying the price.

  80% confidence

• A sizeable fall in inflation in January more than reversed the previous month's uptick and suggests the disinflation trend which began last year is back on track.

  80% confidence

• Given the favourable inflation outlook, the Bank of England is expected to cut interest rates three times in 2026, leaving interest rates at 3% by end of 2026.

  80% confidence

• Shoppers will have been pleased to see the price of clothing, footwear and furniture dropping significantly on the month as a result of heavy discounting by retailers during the January sales. Staples such as bread, cereals and rice all fell in price on the month.

  80% confidence

• The decline in inflation paves the path for the Bank of England's Monetary Policy Committee to cut interest rates at its next meeting. The MPC will welcome the broad-based fall in inflation, with both headline and underlying measures of inflation easing.

  80% confidence

• Parts of the inflation basket most sensitive to labour costs remain too high for comfort. March may prove too soon for the next rate reduction.

  80% confidence

• Inflation concerns among businesses persist, with 56% of firms citing it as a worry. Businesses face huge price pressures squeezing confidence, stalling investment, and holding back recruitment.

  80% confidence

• Cutting the cost of living is the Chancellor's number one priority. Thanks to Budget choices, inflation is being brought down, with £150 off energy bills, a freeze in rail fares for the first time in 30 years, and prescription fees frozen again.

  80% confidence

• 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 with prices dropping back following the increase in December. Lower food prices also helped, particularly for bread, cereals and meat, partially offset by hotel stays and takeaways.

  80% confidence

• Inflation at 3% is still some way above the Bank of England's 2% target, meaning caution should prevail. The next cut will not be until April.

  80% confidence

• The slowdown in inflation offers households a glimmer of hope but the bigger picture is still bleak. Rachel Reeves should secure a better trade deal with European allies to boost growth.

  80% confidence

• Services inflation was stronger than consensus. Inflation is expected to remain around or slightly above 3% in the near term before dropping sharply to 2.2% in April as energy effects turn more favourable.

  80% confidence

• Inflation will decline steeply in April, perhaps to below 2.0%, as the raft of rises in government-set prices and taxes in 2025 drop out of the annual comparison. CPI inflation is expected to average 1.8% in Q4 2026.

  80% confidence

• The Bank of England has fallen behind the curve and will need to play catch-up, potentially reducing borrowing costs more rapidly in 2026.

  80% confidence

• The slowdown in food inflation is positive but grocery prices still remain a real worry for household budgets. After years of rising costs, manufacturers are particularly susceptible to supply chain shocks from geopolitics or climate change.

  80% confidence

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