UK inflation increased to 3.4% in the 12 months to December 2025, based on the Consumer Prices Index (CPI) measure from the Office for National Statistics (ONS).
The increase in price changes was unexpected and the first rise in five months as price rises slowed in the second half of 2025.
Among the chief drivers of the surprise uptick were alcohol and tobacco duty increases, rising airfares and food cost increases.
Commenting on the figures, ONS chief economist Grant Fitzner said: “Inflation ticked up a little in December, driven partly by higher tobacco prices, following recently-introduced excise duty increases.
“Airfares also contributed to the increase with prices rising more than a year ago, likely because of the timing of return flights over the Christmas and New Year period. Rising food costs, particularly for bread and cereals, were also an upward driver.”
However, core CPI, which excludes volatile prices such as energy, food, alcohol and tobacco, rose by 3.5% year-on-year – unchanged on the figure from the previous report.
Fitzner continued: “These were partially offset by a fall in rents inflation and lower prices for a range of recreational and cultural purchases.
“The annual increase in the prices for goods leaving factories was unchanged this month while the increase in the cost of raw materials for business slowed, driven by lower crude oil prices.”
Inflation outlook
The surprise inflation increase looks largely the result of Government-driven tax increases. The wider expectation for 2026 is that inflation will continue to slow and this will encourage the Bank of England to continue cutting its base rate.
However, the Bank of England’s Monetary Policy Committee (MPC) is due to meet on 5 February to make its next rate decision. The unexpected inflation figures could prompt the MPC to take a more conservative approach, given the committee was already finely balanced on whether it should cut or hold its base rate.
Reports now suggest that investors believe a base rate cut will now not come until the MPC’s April meeting.
Overall, inflation continues to slow while the general outlook for rates this year still calls for easing. This is especially the case given rising unemployment which now presents a fresh headache for policymakers.
If you have any considerations about your wider finances and long-term plans with changing developments in mind, it is essential to consider speaking with a financial planner to ensure your goals are not compromised by either changing events or decisions made around speculation on the UK economy.