UK Inflation Rises to 2.9%, Weighing on Rate Cut Expectations

UK consumer price inflation rose to 2.9% in January, exceeding market expectations and prompting traders to reassess the likelihood of near-term interest rate cuts by the Bank of England.

The Office for National Statistics reported that higher food prices and airfares drove the increase, as well as a rise in private school fees following the introduction of VAT on those charges. The inflation data reduces the probability that the Bank of England will cut interest rates at its next policy meeting in March.

The pound strengthened after the release, pushing the EUR/GBP exchange rate down from earlier highs. Market pricing shifted, with traders now assigning a lower chance of a rate cut compared to before the data release.