UK CPI Cools to 3.0% – Transport & Food Drag Inflation Lower, BoE Cut Bets Surge

Driven by decreased transport (2.7% vs. 4.0%) and food (3.6% vs. 4.5%) inflation, the UK CPI for January 2026 increased 3.0% y/y, down from 3.4% in December and consistent with predictions. Excluding erratic food and energy in view of slowing underlying pressures, core CPI dropped from 3.2% y/y to 3.1%, its lowest since August 2021. CPIH, including housing costs, printed at 3.2% y/y, dropping from 3.6%.

Breakdown

While restaurants/hotels quickened to 4.1% (up from 3.8%), services held sticky at 4.4%. Downward contributions came from transportation and food. Following December's +0.4%, monthly CPI dropped 0.5%.

Consequences

Data favors BoE rate cut bets for May (70% odds), therefore somewhat raising GBP vs. USD amid a dovish skew; core improvement helps path to 2% objective by Q2.