Inflation slows to lowest level in nearly a year

Inflation fell to 3% in January - down from 3.4% a month earlier.

That means inflation is now at its lowest level since March 2025.

The fall is down to a slight easing of food and petrol price increases in January, as well as lower airfares.

As well as being good news for hard-pressed households, the drop raises hopes that another interest rate cut could be just around the corner.

Responding to the figures, chancellor Rachel Reeves insisted that cutting the cost of living is her "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," she said.

What is inflation?

Inflation is a measure of how quickly prices are going up. 

So when inflation is high, your money won’t stretch as far, and day-to-day expenses like food, fuel and bills take up a bigger share of your budget.

And if inflation falls, prices aren’t going up as fast.

Remember though - that doesn’t mean prices are actually falling.

What does inflation have to do with interest rates?

The Bank of England’s target is to keep inflation at around 2% and it can change interest rates to bring inflation under control.

Increasing interest rates helps slow down price rises because it makes borrowing more expensive and encourages households and businesses to save more and spend less.

And if inflation is too low, the Bank of England might cut interest rates, so borrowing is cheaper and people feel confident spending and investing more.

Earlier this month, the Bank of England kept interest rates on hold at 3.75%.

How is inflation measured?

The Office for National Statistics tracks inflation by comparing the prices of a virtual shopping basket each month.

This will contain everyday items like bread and milk, as well as bigger purchases like cars and televisions.

The headline inflation figure shows us how much the price of what’s in the basket has changed.

I’m struggling with the rising cost of living - what can I do?

If keeping up with everyday expenses is a constant struggle, there are things you can do to ease the pressure.

Review your spending

Make sure you know exactly how much money you’ve got coming in and where it’s going.

You can then prioritise your spending and see where you can make savings.

Check out our guide to how to create a budget to get started.

And give our budget planner a try - it’s free and easy to use.

Check what benefits you can claim 

You might be able to get financial support from the government to help you get by.

Use our benefits calculator to see what help you could be eligible for.

Get help with your debts

If you’re struggling with debt, get in touch for confidential, practical and impartial debt advice.