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FTSE 100 Live: Inflation falls to near year-low; BAE leads stock rally

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Reeves has struggled to get the economy growing. (Image: PA)

Good morning and welcome back to the City PM liveblog.

Inflation has fallen to a near year-low this morning hitting its slowest pace since March and fuelling hopes that the Bank of England will take the chop to interest rates next month.

New data from the Official for National Statistics showed rose the Consumer Price Index (CPI) – the headline benchmark for inflation – rose three per cent in the year to January 2026, down from 3.4 per cent in December 2025.

Grant Fitzner, chief economist at the ONS, said this was partly driven by petrol prices along with airfares, which had levelled out after a surge in December.

“Lower food prices also helped push the rate down, particularly around bread and meat and cereals,” he added.

“These were partially offset by the cost of hotel stays and takeaways”.

It comes after the latest jobs data released on Tuesday also ramped up hopes of a March rate cut. City officials were pencilling in another reduction to stimulate the economy after the unemployment rate rose to a post-pandemic high at 5.2 per cent yesterday.

Yael Selfin, chief economist at KPMG UK, said the Bank may “want to minimise downside risks to the labour market and lower rates ahead of the next forecast meeting in April”.

But there may be some division on the MPC with Bank of England chief economist Huw Pill last week saying rates were already “a little bit too low”.

In its decision at the beginning of February, the Bank’s Monetary Policy Committee voted to hold rates at 3.75 per cent in a much-closer call than anticipated at a 5-4 split.

Though Bank governor Andrew Bailey did signal a dovish outlook despite voting for a hold. Bailey said the chance of further cuts would increase with price growth expected to “fall back” to the two per cent target in the Spring, compared to previous forecast of 2027.

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