UK inflation eased to 3% in January, reinforcing signs that the period of sharp price growth is beginning to stabilise.
Emeritus Professor Joe Nellis, economic adviser at MHA, the accountancy and advisory firm, said the latest figures indicate a steadying of the economic environment for households and businesses alike.
Professor Nellis said: "For households and businesses alike, this represents real progress.
"While much of the recent improvement reflects fading energy effects, subdued goods prices, and normalised supply chains, this is also the result of cautious consumer demand. This adds even greater weight to arguments for an interest rate cut when the Monetary Policy Committee next meets on 19th March.
"Not only is inflation moving in a positive direction, but policymakers will see a rate cut as a way of combatting a lack of demand in the economy. Policymakers can encourage investment in recruitment by improving financing costs for businesses, stabilising the labour market and improving consumer confidence.
Professor Nellis
"Given these economic conditions and the tight 5-4 vote in favour of holding interest rates in February, it would now be surprising if there was no cut in March. This would be a wise decision from the MPC.
"However, the MPC is unlikely to take their foot fully off the brake in 2026. Inflation is no longer being driven by global shocks. Instead, it is increasingly shaped by domestic pressures, particularly in services, where labour costs and pricing behaviour remain sticky. The Bank of England will be sure to keep a close eye on this. Inflation has not yet fallen far enough to shift policy entirely towards growth, and caution at the Bank of England will keep the recovery muted.
"For businesses, lower inflation improves planning and cost certainty, but borrowing costs remain a constraint on investment and expansion.
"For households, inflation at 3% brings welcome relief. With earnings growth still running ahead of prices, real incomes are improving and confidence is, at last, beginning to stabilise. Yet the recovery in living standards remains fragile. Housing costs, council tax and essential services continue to weigh heavily on budgets, limiting how far spending can rebound."
Among its UK locations, accountancy and advisory firm MHA has offices in Edinburgh and Aberdeen.
For more information, visit www.mha.co.uk