However, core CPI came in slightly higher than forecasted despite dropping from the previous month, from 3.2% to 3.1%. Meanwhile, the month-on-month reading came in at -0.6%. The year-on-year figure reflects cumulative increases over the past 12 months, whereas the negative monthly reading is more forward-looking and indicates that underlying price momentum has weakened significantly. In other words, inflation is no longer accelerating and may be entering a clearer disinflation phase, but price levels remain high enough to justify caution.

This slowdown indicates that disinflation is re-establishing itself after a brief uptick late last year. Price growth is still above the Bank of England’s 2% target, but the trend is clearly downward. Combined with other weak indicators, such as slowing wage growth, rising unemployment and very modest GDP growth, the data paints a picture of an economy that is cooling. That pressures household real incomes less than before but also highlights ongoing economic slack.

For the Bank of England, falling inflation strengthens the case for monetary easing. This data has strengthened the case for rate cuts ever further, with markets now pricing in a 77% chance of a cut at the next meeting in March, reflecting the combination of softer inflation, a weakening jobs market and little sign of imminent price pressures.”

Kenny MacAulay, CEO, of Acting Office, a software platform for accountancy firms said: “Sticky inflation has long been thorn in the side of ambitious companies, raising operating costs and denting margins. This morning’s figures may provide momentary respite but ultimately do not alter the fact that new pressures from AI mean many companies need to fundamentally rethink their business models. Key to this is cutting out legacy systems and unused software, opting for dedicated platforms to manage all core processes.”