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Inflation drops sharply in January to 3%

ended 18. February 2026

In rare good news for the economy, the Consumer Prices Index (CPI) rose by 3.0% in the 12 months to January 2026, down from 3.4% in the 12 months to December 2025. On a monthly basis, CPI fell by 0.5% in January 2026, compared with a fall of 0.1% in January 2025. Core inflation is also down. What are your thoughts as a business owner? Does this represent some light at the end of the tunnel? Is this what you wanted to see and why?

  • Transport, and food and non-alcoholic beverages made the largest downward contributions to the monthly change in both CPIH and CPI annual rates.
  • Core CPIH (CPIH excluding energy, food, alcohol and tobacco) rose by 3.3% in the 12 months to January 2026, down from 3.5% in the 12 months to December 2025; the CPIH goods annual rate fell from 2.2% to 1.6%, while the CPIH services annual rate fell from 4.5% to 4.3%.
  • Core CPI (CPI excluding energy, food, alcohol and tobacco) rose by 3.1% in the 12 months to January 2026, down from 3.2% in the 12 months to December 2025; the CPI goods annual rate fell from 2.2% to 1.6%, while the CPI services annual rate fell from 4.5% to 4.4%.
  • The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 3.2% in the 12 months to January 2026, down from 3.6% in the 12 months to December 2025.
  • On a monthly basis, CPIH fell by 0.3% in January 2026, while it was little changed in January 2025.

Grant Fitzner, Chief Economist, ONS, 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 and cereals and meat. These were partially offset by the cost of hotel stays and takeaways.”

3 responses from the Newspage community

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Editor
Rohit Kohli
Director at The Mortgage Stop
Inflation has fallen to 3.0%, down from 3.4%, and on a monthly basis CPI dropped by 0.3% in January. Core inflation has also edged lower, suggesting underlying price pressures are easing rather than simply shifting between categories. That is welcome news. But it needs context. Growth through Q4 was flat at best, unemployment has climbed to 5.2% and business confidence remains weak. Inflation is cooling, but so is the wider economy. Ministers will almost certainly present this as proof their plan is working. If that is the case, they also need to accept ownership of the rest of the data set. You cannot highlight falling inflation while downplaying stalled growth, rising unemployment and weak confidence. Economic management is judged on the full picture, not selective headlines. For the Bank of England, this strengthens the case for a rate cut in March. The question now is whether a cautious 0.25% move is enough given the pace of economic slowdown.
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Editor
Riz Malik
Independent Financial Adviser at R3 Wealth
Falling inflation with rising unemployment should give the Bank of England the confidence to continue their rate cutting cycle. This is fantastic news for borrowers, but not so good news for savers.
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Philly Ponniah
Chartered Wealth Manager and Financial Coach at Philly Financial
This is the first bit of good news we’ve had in a while. Inflation is simply how quickly prices rise over time, and while 3.0% still means things are getting more expensive, it is happening more slowly than before. Moving down from 3.4% to 3.0% might not sound dramatic, but for businesses and families it eases some of the pressure on everyday spending. It helps that petrol, food and flights became cheaper in January, since these are regular costs for most households and many businesses. When those fall, people have a little more breathing room and companies feel less squeezed. The 0.5% monthly drop matters more because it shows prices are easing right now, not just looking better compared to a high point last year. Annual figures can fall because of past spikes dropping out of the data, but a real month to month decline suggests pressure is genuinely cooling. It does not mean everything is fixed in the economy but things are improving.