UK inflation has jumped to a 10-month high of 3.0% in January 2025, up from 2.5% in December 2024, according to the latest figures from the Office for National Statistics (ONS).
This unexpected rise has surpassed economists’ forecasts, which predicted a more modest increase to 2.9%.
The surge in inflation was primarily driven by increases in transport costs, as well as food and non-alcoholic beverage prices.
Core inflation, which excludes volatile items such as energy, food, alcohol, and tobacco, also rose to 3.7% from 3.2% in December.
This uptick in inflation may give the Bank of England pause for thought regarding future interest rate cuts, as the current level is significantly above its 2% target.
The Bank had previously cut rates to 4.5% in February, but this latest inflation data could potentially slow the pace of further reductions.
Economists are now reassessing their forecasts for 2025, with some expecting inflation to average around 2.4% for the year.
However, the Bank of England has cautioned that rising global energy prices and regulated price adjustments could push headline inflation as high as 3.7% by the third quarter of 2025.
Industry voices respond
Simon Woodcock, Partner at LAVA Advisory Partners, offered a balanced perspective: “So long as inflation sits above the Bank of England’s 2% target, the government’s management of rising prices will remain a focus. However, I don’t believe it’s either unmanageable, or the most important performance indicator for the country.”
Mike Randall, CEO at Simply Asset Finance, highlighted the impact on SMEs: “With business costs already at a notable high, an increase in headline inflation will further squeeze UK SME margins as they look for avenues to grow in 2025.”
However, Joe Nellis of MHA argues the Bank of England won’t reverse course, as the rise is driven by regulated price increases, not sustainable pressures. He said: “Despite the inflation rate rising sharply to 3%…this does not mean that the Bank of England is set to halt or reverse its interest rate-cutting stance… Inflation lingering around 3-4% will not be ideal…but it is not cause for panic.”
Balwinder Dhoot, Director of Industry Growth and Sustainability at The Food and Drink Federation (FDF), provided insight into the food and drink sector: “Whilst food and drink manufacturers continue to work hard to keep costs down for consumers, we saw food and drink price inflation surge to 3.3% in the first month of 2025, up from 2.0% in December 2024.”
The UK now has to deal with this unexpected inflation surge as businesses and consumers will be closely monitoring its impact on the economy and potential policy responses from the Bank of England.
