UK inflation: Price rises cool as base effects start to come through
Jonathan Moyes, head of Investment Research, Wealth Club: “Inflation took a step lower today, but fell short of breaking into the 2% range.
We are going to be hearing a lot about base effects this year. Big inflationary spikes from energy, employers’ national insurance, and the private school fee VAT hike from earlier in 2025 that should roll out of the 12-month window for inflation as we move through 2026. This will have a cooling effect on inflation, and we should see inflation fall back to 2% this year.
On the back of weak employment and wage growth data from yesterday, there would have been many revising their expectations for inflation overnight. Instead, inflation came in bang in line with expectations. The market reaction is expected to be muted as a result.
What does all this mean for the Bank of England? The next meeting is on 19 March. With a deteriorating labour market, weak wages, weak economic growth, and no ugly surprises on inflation, it is likely we will see our first rate cut of 2026. The economy may need several more before it begins to show signs of life. For an embattled government starved of good news, they couldn’t come soon enough.”