18 February 2026
If you are covering the latest UK inflation data, please see the following comment from Jonathan Raymond, investment manager at Quilter Cheviot:
“Hot on the heels of yesterday’s dire UK labour market print, this morning’s inflation data will be a welcome relief. Headline CPI came in at 3.0% in the 12 months to January, down from 3.4% previously, with a monthly fall of 0.5%. Core inflation – which strips out energy, food, alcohol and tobacco - fell to 3.1%, slightly ahead of expectations of 3.0% but a good sign of softening nonetheless. This brings inflation to its lowest level since March last year and makes the Bank of England’s forecast of a sharp return to target over the coming months seem much more achievable.
“A combination of falling energy costs, easing goods price inflation and moderating wage pressures is helping pull overall inflation lower. Crucially, services inflation, which has proven stubborn for several years and had ticked up once again at the end of last year, also looks to be softening. It came in at 4.4% down from 4.5% previously and, given it has been a component closely watched by the Bank, this will be particularly welcome.
“As the economy barely kept afloat towards the end of last year, and the labour market and wage growth have cooled considerably, the Bank will likely feel increasingly comfortable cutting rates as 2026 progresses. Following a hold at its first interest rate decision of the year, which saw a tight 5-4 vote split, the monetary policy committee is now facing renewed calls for a cut when it next meets in March. Many economists expect a 0.25% reduction next month, followed by another later in the year.
“That said, the Bank will want to see a consistent run of softer data before declaring the battle against inflation won. One-off changes to more volatile elements such as airfares, as well as the remaining fallout of the budget, could still be skewing the numbers somewhat. Importantly, the decision announced at the budget to freeze several “regulated” prices – including energy bills and rail fares – should further support disinflation from April onwards, adding to the downward momentum. Nevertheless, today’s figures mark a step in the right direction.
“If the downward trend continues, the Bank will be under growing pressure to loosen policy to support the economy. However, a rate cut alone may not be enough to meaningfully shift the dial on growth. That said, the latest business surveys offer a glimmer of optimism. January’s PMIs showed a modest pickup across both manufacturing and services, suggesting underlying activity may be stabilising and laying the groundwork for a gradual recovery as the year progresses. Allied to this, lower mortgage rates and some post-budget clarity may help to bring the housing market back to life, providing a much-needed shot in the arm to an important part of the economy.”
