British inflation rose to 3.0% in January, reaching a 10-month high and exceeding expectations. Analysts and the Bank of England had anticipated a smaller increase to 2.8%, following December’s figure of 2.5%. The higher rate raises questions about the central bank’s expectation that inflationary pressures will decline in the long term.

According to the Office for National Statistics, the increase was largely driven by a smaller-than-usual decline in airfares, which had contributed to lower inflation in December, as well as rising automotive fuel prices. Food prices also increased, and private school fees rose following the government’s decision to apply value-added tax to them.

Services inflation, a key measure in the Bank of England’s interest rate considerations, rose from 4.4% to 5.0%, though it remained below the 5.2% expected by economists and the central bank.

Sterling briefly strengthened against the dollar following the release of the inflation data before returning to its previous level.

From April 1, finance minister Rachel Reeves’ decision to raise employers' social security contributions will take effect, coinciding with a nearly 7% increase in the national minimum wage. This raises concerns about how these cost increases may influence prices.

The Bank of England projects that consumer price inflation will peak at 3.7% in the third quarter of 2025, primarily due to rising energy costs and regulated tariff adjustments for utilities. Governor Andrew Bailey and other policymakers believe that a cooling labour market will help contain wage growth and limit inflationary pressures.

Core inflation, which excludes energy, food, alcohol, and tobacco, increased from 3.2% to 3.7% in January, indicating that underlying price pressures remain a concern.