Theo Leggett
International business correspondent

The Bank of England has a problem.

Inflation is ticking upwards, faster than expected. It is now well above the Bank’s own 2% target.

Until now, the Bank has taken a rather sanguine view of this. It fully expects the rate of inflation to continue climbing until the middle of the year, before falling back – a short-lived "hump" of more rapidly rising prices.

At the same time, the economy is weak – it grew by just 0.1% between October and December.

In recent weeks, the Bank’s focus appears to have been on growth. It cut interest rates earlier this month, from 4.75% to 4.5%, and analysts have been expecting further cuts later in the year.

But if inflation picks up greater momentum than expected – and underlying inflationary pressures mount – the Bank may feel priorities have to change. That would mean keeping rates higher for longer.

The UK inflation rate can impact your money in more ways than one.

Firstly, rising inflation means things cost more - so today's 3% figure means if a bottle of milk cost £1 a year ago it now costs £1.03.

Also, when inflation rises above its 2% target, the Bank of England can decide to increase interest rates.

The idea is that if you make borrowing more expensive, people have less money to spend and may save more, which in turn reduces demand for goods and slows price rises.

But it is a balancing act - increasing borrowing costs risks harming the economy.

For example, homeowners face higher mortgage repayments, which can outweigh better savings deals.

Businesses also borrow less, making them less likely to create jobs. Some may cut staff and reduce investment.

Take a look at the below to see how inflation has changed over the last several years - the red dotted line signals the Bank of England's target to keep it at 2%.

The chief economist of the Office for National Statistics, Grant Fitzner, says: "The rise was driven by air fares not falling as much as we usually see at this time of year, partly impacted by the timing of flights over Christmas and New Year.

"This was the weakest January dip since 2020.

"After falling this time last year, the cost of food and non-alcoholic drinks increased, particularly meat, bread and cereals.

"Private school fees were another factor, as new VAT rules meant prices rose nearly 13% this month."

Jen Meierhans
Business reporter

We weren’t expecting such a sharp rise in inflation – most economists had predicted it would go to 2.8%.

This brings us to the highest annual rate since March last year.

Prices rose by 3% in the year to January, the fastest rate for 10 months.

Inflation is the increase in the price of something over time.

A good example of this is if a bottle of milk costs £1 but is £1.05 a year later, then annual milk inflation is 5%.

Inflation has fallen significantly since hitting 11.1% in October 2022, which was the highest rate for 40 years.

However, that doesn't mean prices are falling - just that they are rising less quickly.

Inflation soared in 2022 because oil and gas were in greater demand after the Covid pandemic, and energy prices surged again when Russia invaded Ukraine.

It then remained well above the 2% target partly because of higher food prices.

• Get up to speed with the UK inflation rate and how quickly prices are rising

Too soon for Trump's tariff talk to be felt in consumer pricespublished at 06:41 Greenwich Mean Time 19 February

06:41 GMT 19 February

Simon Jack
Business editor

Inflation has come down a lot since the peaks of 11% we saw two-and-a-half years ago and it's been sufficient for the Bank of England to start lowering interest rates.

That of course doesn't mean prices are falling - just that they are going up less quickly.

But inflation is expected to start heading up again from 2.5% last month to 2.8% this month as above inflation wage rises and energy prices continue to put upward pressure on the cost of living. (We'll get the figures at 07:00.)

It's too soon for the talk of tariffs and trade wars to be felt in consumer prices but it's another reason why many - including the Bank of England - expect inflation to rise over the next year.

Image source, EPA

The US and EU countries have also been trying to limit price increases.

The inflation rate for countries using the Euro was 2.5% in January 2025, up from 2.4% in December.

In June 2024, the European Central Bank (ECB) cut its main interest rate from an all-time high of 4% to 3.75%, the first fall in five years.

It has since cut rates four times to 2.75% in January., external

US inflation unexpectedly rose to 3% in the year to January 2025, up slightly from 2.9% in the year to December 2024, and well above the US central bank's 2% target.

In the 12 months to December 2024, inflation was at 2.5%, down from 2.6% the month before.

This marked the first fall in inflation for three months.

In October 2022, inflation peaked at 11.1% in the UK - the highest it had been for over 40 years, according to the Office for National Statistics.

• For context: The inflation figures revealed at 07:00 today will relate to the month of January 2025. The Bank of England previously said it expects inflation to spike at 3.7% between July and September 2025 before dropping back to its 2% target.

Image source, Getty Images

The latest inflation figures are due out this morning, which will tell us how prices are rising across the UK.

Economists are expecting a rise from 2.5% in the year to December to 2.8% in January.

That would bring the rate of price rises further away from the Bank of England’s 2% target.

• As a reminder: Inflation describes rising prices - if a bottle of milk costs £1 but is £1.05 a year later, then annual milk inflation is 5%.

We'll bring you the figures here as we get them.