UK inflation leaps to higher-than-expected 3% in January

The U.K.'s inflation rate rose sharply to 3% in January, coming in above analyst expectations, according to data released by the Office for National Statistics (ONS) on Wednesday.

Economists polled by Reuters had expected a reading of 2.8% in the twelve months to January.

Britain's consumer price index (CPI) fell to a lower-than-expected 2.5% in December, with core price growth also slowing further.

Core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, rose by 3.7% in the 12 months to January, which was up from 3.2% in the previous month and marked the highest rate since April 2024. The core services annual rate rose from 4.4% to 5.0%, the ONS said.

The ONS stated Wednesday that the largest upward contribution to the monthly change in the CPI came from transport and food and non-alcoholic beverages. The largest downward contribution to both came from housing and household services, it noted in a press release.

The U.K.'s inflation rate had hit a more than three-year low of 1.7% in September, but monthly prices have picked up since on the back of higher fuel costs and services fees rising faster than the price of goods.

Earlier in February, sluggish growth and a recent drop in inflation prompted the Bank of England to make its first interest rate cut of the year, bringing its benchmark rate down to 4.5%.

The central bank signaled further rate trims were coming but noted that higher global energy costs and regulated price changes are expected to push up headline inflation to 3.7% in the third quarter of 2025, "even as underlying domestic inflationary pressures are expected to wane further." The BOE expects the inflation rate to fall back to the 2% target by 2027.

Along with listing its price growth outlook, the central bank also halved the U.K.'s economic growth forecast from 1.5% to 0.75% this year.

This breaking news story is being updated.