The U.K.’s inflation rate climbed to 3% in January, outpacing analyst forecasts of 2.8%, according to data from the Office for National Statistics (ONS). The increase marks a sharp rebound from December’s 2.5% reading.
Core inflation, which excludes volatile items such as energy, food, alcohol, and tobacco, rose to 3.7% from 3.2% the previous month. The annual core services inflation rate also increased from 4.4% to 5.0%, reflecting broad-based price pressures.
The ONS attributed the sharp rise in consumer prices to higher transport costs and food prices, particularly meat, bread, and cereals.
Additionally, the introduction of new VAT rules contributed to a nearly 13% rise in private school fees, further adding to inflationary pressures.
Inflation had hit a more than three-year low of 1.7% in September before rising again due to increasing fuel costs and service sector price hikes.
The Bank of England recently cut interest rates to 4.5% in response to slowing economic growth. The central bank projects headline inflation will rise to 3.7% in Q3 2025 due to global energy costs and regulated price adjustments before gradually declining toward its 2% target by 2027.
Alongside its inflation outlook, the Bank of England also halved the U.K.’s economic growth forecast for 2025 from 1.5% to 0.75%.