Prime Highlights:
- UK inflation increased to 3.4% in December, driven by higher air fares, tobacco duties, and rising food prices.
- The Bank of England expects inflation to fall towards its 2% target during 2026, supported by slower wage growth and government cost-of-living measures.
Key Facts:
- Core inflation, which excludes food and energy, remained steady at 3.2%.
- Wage growth slowed to 4.5%, suggesting overall inflation pressures are gradually easing.
Background:
UK inflation rose in December for the first time in five months, reaching 3.4%, according to data released by the Office for National Statistics (ONS). The increase, up from 3.2% in November, was slightly higher than economists’ expectations and is likely to influence the Bank of England’s next interest rate decision.
The rise marks a pause in the recent downward trend in inflation, which had been easing since October after hitting 3.8% in September. City analysts had forecast a smaller uptick to 3.3%, but the final figure exceeded those projections.
ONS officials said the increase was largely driven by temporary and volatile factors. Air fares rose sharply during the Christmas period, reflecting seasonal travel demand and a comparison with unusually low prices a year earlier. Higher tobacco taxes also pushed prices up, and the cost of everyday foods like bread and cereals added to the increase.
Grant Fitzner, chief economist at the ONS, said inflation “ticked up a little in December,” noting that tobacco prices and rising food costs were key contributors to the increase.
The latest data is expected to reinforce expectations that the Bank of England will keep its benchmark interest rate unchanged at 3.75% when its Monetary Policy Committee meets in February. Most economists believe the central bank will wait for clearer signs of sustained disinflation before adjusting rates, with many now pencilling in a possible cut later in the spring.
Government ministers reiterated their focus on easing living costs. Chancellor Rachel Reeves said tackling inflation remains her top priority, pointing to measures announced in the autumn budget, including energy bill support, freezes on rail fares and prescription charges, and increases to the minimum and living wage.
Even with the rise in December, inflation is expected to fall during 2026. The Bank of England predicts prices will get closer to its 2% target by mid-year, helped by slower wage growth and government measures to reduce the cost of living.
Core inflation, which ignores food and energy, stayed at 3.2%, while wages grew more slowly at 4.5%, showing that overall inflation pressures are easing.