All eyes are on the latest UK inflation figures, set to be released this morning, which could signal a significant easing in the nation's persistent cost of living squeeze. Economists in the City are forecasting a notable slowdown in the pace of price rises for January, offering a glimmer of relief to households and businesses alike.
Inflation Forecast to Drop to 3%
The consumer price index (CPI) is expected to have fallen to 3% in January, down from 3.4% in December. This anticipated decline would bring inflation back closer to the Bank of England's long-standing target of 2%. If the predictions hold true, this would mark the lowest inflation level since March 2025, representing a crucial step towards economic stability.
Understanding the Inflation Slowdown
It is important to clarify that a drop in inflation does not equate to falling prices. Instead, it indicates that prices are rising at a slower rate compared to the same period a year ago. This distinction is vital for consumers who continue to feel the pinch of elevated costs across essential goods and services.
The December data had shown an unexpected rise in inflation, breaking a five-month trend of declines. Therefore, a return to a downward trajectory in January would be particularly welcomed by policymakers and the public.
Expert Analysis on Contributing Factors
Victoria Scholar, head of investment at interactive investor, provided insight into the factors driving this easing inflationary picture. She pointed to the sluggish economic backdrop, a cooling labour market with moderated wage growth, several measures announced in the recent Budget, and base effects from last April. In April, there was a temporary bump in inflation due to energy price adjustments, which are now contributing to the comparative slowdown.
"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," Scholar noted, highlighting a cautiously optimistic outlook for the medium term.
Food Price Inflation Remains a Concern
Ellie Henderson, an economist at Investec Economics, added to the analysis by predicting that food price growth is likely to have dropped to 4.2% in January. However, she issued a warning that food inflation continues to pose a "key concern" for the economy. Despite the overall easing trend, specific sectors like food retail may still experience persistent price pressures, affecting household budgets disproportionately.
Today's Economic Agenda
The release of the UK inflation report at 7am GMT is the headline event, but it is part of a broader slate of economic data scheduled for today:
- 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
These additional reports will provide further context on both domestic and international economic conditions, influencing market sentiment and policy discussions in the coming days.
