The Consumer Prices Index (CPI) rose by 3.0% in the 12 months to January 2025, up from 2.5% in the 12 months to December 2024, the latest data from the Office for National Statistics has revealed.
This marks the highest level of inflation in over 10 months.
On a monthly basis, CPI fell by 0.1% in January 2025, compared with a 0.6% fall in January 2024.
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 3.9% in the 12 months to January, up from 3.5% in December.
Monthly, the CPIH remained little changed throughout the month, compared with a 0.4% fall in January 2024.
The largest upward contribution to the monthly change in both CPIH and CPI annual rates came from transport, and food and non-alcoholic beverages.
The largest downward contribution to both came from housing and household services.
Reaction:
Mark Eaton, chief operating officer at April Mortgages:
“A resurgence in inflation is a reminder that the Bank of England is walking a tightrope when it comes to managing interest rates.
“There has been talk of further rate cuts this year, but those predictions feel premature with prices now rising more quickly. The truth is no one knows for sure what comes next.
“The Bank is forecasting that inflation will peak at 3.7% this year provided core inflation, which strips out volatile goods and services such as food and energy, remains stable.
“While the Bank is optimistic that it will fall back to 2% shortly after this, it may be wary of cutting rates too soon and will need to adapt quickly in response to global events.
“For borrowers, rising living costs will put further pressure on already stretched incomes and compound the affordability challenge impacting buyers across the country, particularly those trying to get a foot on the ladder.”
Sarah Pennells, consumer finance specialist at Royal London:
“December marked only a temporary reprieve from rising inflation and while the cost-of-living crisis may have eased, many people are still facing tough times financially.
“Royal London cost of living research shows that almost nine out of 10 adults are worried about rising energy costs and just over eight in ten about higher food bills.
“If inflation continues rising as forecast this year, it could put the most vulnerable at further financial risk.
“One in 10 adults currently say they couldn’t afford any unexpected bill – no matter how small – from either their savings or income.
“With wholesale gas prices recently reaching their highest level for two years, many will be concerned about consumer energy prices and this inflation data will only increase anxiety about everyday costs such as energy bills.”
Russell Gous, editor-in-chief of TopMoneyCompare:
“The confirmation that UK inflation rose to 3% in January will likely reinforce concerns that price pressures are proving more persistent than expected.
“While the increase is largely driven by services inflation, particularly airfares and private school fees, the concern will be whether this signals a longer-lasting trend rather than a temporary spike.
“For sterling, this higher-than-expected inflation rise could offer some short-term support, as it may reduce the likelihood of the BoE cutting rates as aggressively as markets had anticipated.
“If policymakers signal greater caution in easing monetary policy, we could see the pound hold firm or even strengthen against major currencies.
“However, if the Bank maintains its stance that inflation will ease later in the year and sticks to its projected rate cut path, sterling could come under renewed pressure.
“Markets will now shift their focus to the BoE’s next moves; any indication that rate cuts could be delayed or scaled back will be key to determining how the pound reacts in the coming weeks.
George Homes, managing director of Aurora Capital:
“The rise in inflation to 3% is disappointing news for small businesses already facing mounting cost pressures.
“After months of progress in bringing inflation down, this uptick will fuel concerns about rising expenses, from energy bills to supplier costs, at a time when SMEs are already grappling with higher wage bills and National Insurance increases.
“For businesses relying on borrowing, this increase could also impact interest rate expectations.
“While the Bank of England is still expected to cut rates later this year, persistent inflation may slow the pace of reductions, keeping borrowing costs higher for longer.
“For SMEs that had been hoping for financial relief, this adds another layer of uncertainty.
“With margins already tight, small businesses will need to plan and manage costs carefully.
“The Government must also ensure that SMEs are supported, whether through tax reliefs, access to affordable finance, or policies that ease cost burdens rather than add to them.”
Neil Rudge, head of banking for commercial at Shawbrook:
“The uptick in inflation this January will be disappointing for SME leaders already grappling with significant challenges—including a stagnant economy and the upcoming increase in employer NICs this April.
“These pressures, combined with uncertainty around potential tariffs for businesses trading internationally, create a volatile landscape that makes planning increasingly difficult.
“On a more positive note, the Bank of England’s recent interest rate cut signals a shift towards a more supportive borrowing environment for SMEs.
“With expectations of gradual, continued reductions, this provides businesses with greater confidence in their financial planning.
“However, an uptick in inflation could disrupt these expectations, potentially delaying further cuts and impacting business confidence.”
Nicholas Hyett, investment manager, Wealth Club
“If there was any doubt about what the Bank of England would do at its March interest rate meeting there isn’t now.
“Headline inflation has jumped significanlty, and came in some way ahead of market expectations.
“Higher prices for motor fuels and airfares have pushed up transport costs, while food and non-alcoholic drinks saw prices rise 3.3% year-on-year.
“Both will increase the squeeze on working households, as will the rise in council tax, which has seen owner occupiers’ housing costs rocket by 8% in 12 months.
“Making matters worse is the substantial uptick in Core inflation – which strips out food and energy prices and is considered a better measure of domestically generated inflation.
“With Core inflation nearly twice the Bank of England’s target we see little chance the Bank starts cutting rates again any time soon.”
