Traders are betting on a March interest rate cut after inflation fell to a 10-month low in January.

Markets now estimate there is an 84pc chance that the Bank of England will cut rates from 3.75pc to 3.5pc next month, raising their expectations after official figures showed a significant fall in Britain’s inflation rate.

The consumer prices index fell from 3.4pc in December to 3pc in January, according to Office for National Statistics data released on Wednesday.

It is the lowest inflation reading since March last year, when prices rose at an annual pace of 2.6pc.

Yael Selfin, chief economist at KPMG UK, said the decline in inflation “paves the path” for the Bank of England’s Monetary Policy Committee to cut interest rates at its next meeting.

She said: “Today’s inflation data will likely prompt the Bank of England to lower interest rates next month. The MPC will welcome the broad-based fall in inflation, with both headline and underlying measures of inflation easing.”

However, some economists expect the Bank’s rate-setters to hold off until April to ease borrowing costs.

Ellie Henderson, from Investec, warned: “Inflation at 3pc is still some way above the Bank of England’s 2pc target, meaning that caution should still prevail when it comes to loosening policy further.

“Our base case remains that the next cut will not be until April, with the fact that today’s numbers exceeded the Bank of England projection a reason to support that call.”

12:00pm

Thanks for following our coverage of the latest inflation figures for Britain.

Traders increased their expectations the Bank of England’s Monetary Policy Committee will lower borrowing costs when it meets in March. It comes after official figures showed that inflation fell to a 10 month low in January.

Threadneedle Street expects inflation to fall back to its 2pc target in April.

11:40am

London-listed stocks have continued to climb higher, as slowing inflation fuels expectations the Bank of England will lower borrowing costs in March.

The FTSE 100 rose 1.1pc to 10,671.72, powered higher by gains in mining stocks.

Antofagsta added 4.3pc to 155p and Anglo American increased 3pc to 105p.

The more UK focused FTSE 250 gained 0.3pc to 23,617.79.

11:11am

Despite market expectations of a rate cut in March rising, several economists have said the Bank of England will hold off on lowering borrowing costs until April.

Andrew Wishart, from Berenberg, said: “Parts of the inflation basket most sensitive to labour costs remain a little too high for comfort. As a result, March may prove too soon for the next rate reduction.”

Debapratim De, director of economic research at Deloitte, said easing inflation and the cooling labour market has opened the door for further interest rate cuts.

De said: “Recent MPC voting patterns and today’s data point to an earlier easing than markets foresee. We expect two 25-basis-point cuts between now and autumn, with the first cut coming in April.”

10:53am

Cheaper air fares in January contributed to last month’s slowdown in inflation.

Figures from the ONS showed that air fares fell by 46.4pc between December 2025 and January 2026. It comes after costly Christmas flights pushed inflation higher in December.

Flights are known for their seasonal and volatile prices changes.

Martin Beck, chief economist at WPI Strategy, said “Lower petrol prices, some reversal of December’s erratic rise in airfares inflation and a sharp slowdown in food price rises played the biggest roles in pushing the CPI measure down. “

10:38am

Although inflation still remains some way off the Bank of England’s 2pc target, Kallum Pickering, chief economist at Peel Hunt warned there is a “clear risk” it has not cut rates fast enough.

Kallum Pickering, chief economist at Peel Hunt, said “The clear risk now is that the bank has fallen behind the curve and will need to play catch up.”

He added that this could cause the Bank of England’s Monetary Policy Committee to reduce borrowing costs more rapidly this year. Markets currently expect two rate cuts in 2026.

Clear downward trend in UK headline inflation towards the BoE's 2% target. Looking at annualised data, which gives a better measure of current price pressures, the BoE is now undershooting its target. Given known lags with monetary policy, the clear risk now is that the bank has… pic.twitter.com/hcG066CGBd

— Kallum Pickering (@KallumPickering) February 18, 2026

10:21am

The slowdown in inflation offers households “a glimmer of hope but the bigger picture is still bleak”, Daisy Cooper, the deputy leader of the Liberal Democrats has warned.

She called on Rachel Reeves to secure a better trade deal with “European allies”, which Cooper claimed would boost growth.

This drop offers a glimmer of hope but the bigger picture is still bleak. It remains a mystery as to why the Chancellor refuses to pull the biggest growth lever available by getting a better trade deal with our European allies, which would boost growth and cut the cost of living. https://t.co/sN2TCf4uT5

— Daisy Cooper MP ???? (@libdemdaisy) February 18, 2026

10:06am

Businesses are continuing to grapple with cost pressures despite the slowdown in inflation, economists and trade bodies have warned.

Stuart Morrison, research manager at the British Chambers of Commerce said that despite inflation declining to a 10 month low in January it is “only part of the story”.

He said: “Inflation concerns among businesses persist, with 56pc of firms citing it as a worry in our latest survey. Businesses are facing huge price pressures which are squeezing confidence, stalling investment and holding back recruitment.”

Julian Jessop, an economics fellow at the Institute of Economic Affairs said: “There is also danger that inflation does not fall as far as expected, or that it does not remain lower for long.

“Business surveys suggest that underlying cost pressures remain sticky, and medium-term inflation expectations are still too high for comfort.”

09:41am

The slowing pace of price rises shows the decline in inflation is back on track, an economist has said.

Martin Beck, the chief economist at WPI Strategy, said: “A sizeable fall in inflation in January more than reversed the previous month’s uptick and suggests the disinflation trend which began last year is back on track.”

Official figures showed that inflation fell to a ten month low in January. It marked a reversal from December’s figures, which showed that inflation rose unexpectedly to 3.4pc.

He expects inflation to decline to the Bank of England’s 2pc target as soon as April, as household energy bills are expected to decline in the coming months.

“Last year’s tax and regulated price rises will fall out of the annual comparison, some green levies are being removed from energy bills, and Easter timing effects should also exert downward pressure.”

09:02am

Slowing prices rises in the education sector contributed to a decline in inflation last month.

Prices increases in the sector have eased at it now marks one year since Labour’s move to impose VAT on private school fees. The change had caused a significant rise in education prices when it came into force in January last year.

However, the increase in costs has now dropped out of the annual inflation calculations.

The ONS said that prices in the education division rose by 5.1pc in the year to January, down from 7.6pc in the 12 months to December 2025.

08:48am

A decline in fuel prices dragged inflation lower in January, as costs at the pump fell.

Figures from the ONS showed that the average price of petrol dropped by 3.1 pence per litre between December 2025 and January 2026.

The average price of petrol stood at 133.2 pence per litre in January 2026, down from 137.1 pence per litre during the same month a year earlier.

In welcome news for drivers, diesel prices also declined last month.

08:30am

The FTSE 100 rose at the open after slowing inflation paved the way for the Bank of England to cut rates this spring.

The UK’s flagship stock index was up 0.4pc to 10,595.52 as traders expect the Bank of England to reduce borrowing costs this year.

The domestically focused FTSE 250 climbed 0.1pc to 23,574.42.

08:22am

Services inflation, which is closely watched by the Bank of England’s rate-setters, fell to 4.4pc in January, down from 4.5pc in December.

However, this was higher than the 4.3pc that economists had expected.

Several economists have said the latest figures show that the important inflation measure remains “sticky”.

Rob Wood, chief UK economist at Pantheon Macroeconomics, said: “Services inflation was stronger than consensus.”

Sanjay Raja, chief UK economist at Deutsche Bank said: “Services inflation remains sticky. The January print showed a far smaller drop than expected with services CPI coming in at 4.4pc year-on-year.”

Despite the stronger than forecasts services inflation, Raja expects headline inflation to decline to near 2pc by spring.

08:09am

Food inflation dropped to 3.6pc in January, the lowest level in nine months, as price rises slowed.

It marks a sharp decline from December, when figures showed that food inflation stood at 4.5pc.

Dr Liliana Danila, an economist at The Food and Drink Federation, said the slowdown in food inflation was “positive” but warned that grocery prices “still remains a real worry for household budgets”.

She added: “After many years of rising costs businesses across the supply chain have had their margins eroded, leaving manufacturers particularly susceptible to the supply chain shocks caused by geopolitics or climate change.

“We’ve previously seen the impact that this can have on inflation, with prices of ingredients like cocoa and coffee skyrocketing, so the UK’s recent extreme wet weather flooding farms is a concern for the year ahead.”

08:00am

The slowdown in price rises last month are paving the way for inflation to reach the Bank of England’s 2pc target in the coming months, a number of economists have forecast.

Debapratim De, director of economic research at Deloitte, said: “The sharp slowing of price rises in January is consistent with expectations of inflation plummeting over the coming months.

“A substantial reduction in energy bills, much slower rises in regulated prices compared to last year, and a moderation in food price rises are set to bring headline inflation at or close to the Bank of England’s 2pc target in April.”

James Smith, chief economist at the Resolution Foundation, said: “The fall in January signals a rapid return to ‘normal’ inflation in the coming months as the rate of price rises settles close to the 2 per cent target for the first time since before the pandemic.”

07:49am

The drop inflation marks a rare bout of good news for Rachel Reeves. Economists have forecast that price rises are expected to slow further in the coming months.

Rob Wood, chief UK economist at Pantheon Macroeconomics, said: “We expect inflation to remain around or slightly above 3% in the near term before dropping sharply to 2.2pc in April as energy effects turn more favourable.”

Capital Economics expects CPI inflation to average 1.8pc by the final three months of the year.

Ruth Gregory, deputy chief UK economist at Capital Economics, said: “It’s no secret that inflation will decline steeply in April, perhaps to below 2.0pc, as this is when the raft of rises in government-set prices and taxes in 2025 drop out of the annual comparison.”

07:37am

Food inflation slowed to 3.6pc in last month as  the price of cupboard staples, such as bread and cereals fell.

It will be a welcome sigh of relief for British households as rising supermarket prices have outpaced consumer price inflation (CPI).

Harvir Dhillon, an economist at the British Retail Consortium, said: “Shoppers will have been pleased to see the price of clothing, footwear and furniture dropping significantly on the month as a result of heavy discounting by retailers during the January sales.

“And there was further good news for customers as staples such as bread, cereals and rice all fell in price on the month.”

The Consumer Prices Index (CPI) rose by 3.0% in the year to January 2026, down from 3.4% in December 2025.

Read more ➡️ https://t.co/E3Ro3Ebfoy pic.twitter.com/SRMN7J5Xpd

— Office for National Statistics (ONS) (@ONS) February 18, 2026

07:25am

Sir Mel Stride, the shadow chancellor, said: “Inflation remains above target thanks to Labour’s choices. Families are still feeling the pinch because of Labour’s economic mismanagement.

“This comes after the ONS confirmed unemployment has risen to a five-year high, with youth unemployment now above the European average, and GDP per capita falling. Wes Streeting was right that Labour have no growth strategy.

“Britain is not being governed – the economy is weaker and working people are paying the price.”

Inflation remains above target thanks to Labour's choices. Families are still feeling the pinch because of Labour's economic mismanagement.

This comes after the @ONS confirmed unemployment has risen to a five-year high, with youth unemployment now above the European average, and… https://t.co/QI2D0zBXkv

— Mel Stride (@MelJStride) February 18, 2026

07:21am

A drop in transport and foods costs helped to bring inflation down to 3pc in January, according to the Office for National Statistics.

Figures show that prices in the transport category increase by 2.7pc in the year to January 2026, a drop from 4.0pc in the 12 months to December.

A decline in airfares after the festive season contributed to slowing inflation.

Suren Thiru, Economics Director at the ICAEW, said: “January’s decline kicks off a dramatic descent for inflation with falling food prices and lower energy bills – helped by the Chancellor’s cut to green levies and April’s expected energy price cap reduction – pulling it back to 2% in the spring.

07:14am

The drop in inflation has opened the door further for the Bank of England to cut interest rates from 3.75pc to 3.5pc at its next meeting in March.

The fall still leaves inflation higher than the Bank of England’s 2pc target. However, it will assure rate-setters that they can reduce borrowing costs in an effort to boost the sluggish economy.

Yael Selfin, chief economist at KPMG UK, said: “The MPC will welcome the broad-based fall in inflation, with both headline and underlying measures of inflation easing.

“Given the favourable inflation outlook, the Bank is expected to cut interest rates three times this year, leaving interest rates at 3pc by the end of 2026.”

It comes after figures released on Tuesday showed that unemployment rose to 5.2pc in the three months to December as Britain’s jobs market continues to deteriorate.

07:11am

In another bout of reassuring news for the Chancellor, underlying levels of inflation declined in January.

So-called core inflation, which strips out volatile food and energy prices, fell to 3.1pc last month, down from 3.2pc in December. Analysts had expected it to decline to 3pc.

Services inflation, which is closely watched by the Bank of England when setting interest rates, dipped to 4.4pc in January. This marks a fall from 4.5pc a month earlier, but was higher than economists forecasts of 4.3pc.

07:09am

Rachel Reeves, the Chancellor, said: “Cutting the cost of living is my number one priority. Thanks to the choices we made at the Budget we are bringing inflation down, with £150 off energy bills, a freeze in rail fares for the first time in 30 years and prescription fees frozen again.

“Our economic plan is the right one, to cut the cost of living, cut the national debt, and create the conditions for growth and investment in every part of the country.”

07:08am

Grant Fitzner, the ONS Chief Economist, 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 to push the rate down, particularly for bread and cereals and meat. These were partially offset by the cost of hotel stays and takeaways.”

06:38am

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06:28am

Thanks for joining me. The Office for National Statistics will soon release its latest consumer prices index. We will have all the latest here. First, catch up on what you need to know.

What happened overnight

On Wall Street, stocks remained little changed on the first day of trading this week, following Monday’s bank holiday, as investors await the minutes from January’s Federal Reserve meeting.

The S&P 500, the Dow Jones Industrial Average and the tech-heavy Nasdaq Composite all climbed about 0.1pc.

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