Cooling UK inflation fuels expectations of March interest rate cut

Euronews · Feb 18, 2026 · Collected from RSS

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Published on 18/02/2026 - 16:53 GMT+1•Updated 16:54 Inflation in the UK fell to a 10-month low, driven largely by lower food and gas prices, official figures showed on Wednesday — a drop that has reinforced expectations 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 a year earlier, down from 3.4% in December. The decline was in line with analysts’ expectations and keeps inflation on course to return to the central bank’s 2% target in the coming months. When it held its main interest rate at 3.75% at its last meeting earlier this month, the Bank said it expected inflation to be back at target by April. Relief for Labour as cost pressures ease The further fall in inflation will offer some relief to the Labour government, which has seen its poll ratings slide sharply since returning to power in July 2024, partly because of cost-of-living pressures. ‘Cutting the cost of living is my number one priority,’ Chancellor of the Exchequer Rachel Reeves said on Wednesday. Inflation is expected to reach the target in April, largely because of government action. In her Budget last November, Reeves announced tax cuts aimed at bringing down domestic energy bills. With inflation easing, a rate cut in March is now widely expected. The bigger question for financial markets is how many further reductions will follow this year. ‘Inflation is likely to fall further in the coming months, dropping back to 2% in the near future, which should open the door to more rate cuts later this year,’ said Luke Bartholomew, deputy chief economist at asset manager Aberdeen.