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Recent official data reveals that the UK’s inflation rate increased to 3.4% in the year leading up to December, marking the first rise in five months. This figure surpassed economists’ expectations, who had anticipated a more modest increase. However, experts caution that this uptick is unlikely to signal a sustained upward trend, as the December data was influenced by temporary factors such as a surge in airfares around the Christmas period and a rise in tobacco taxes announced during the November Budget.
The rise in the inflation rate, which went up from 3.2% in November, comes just ahead of the Bank of England’s initial interest rate meeting of the year. At the end of 2025, the Bank had reduced borrowing costs to 3.75%. Former Bank of England policymaker Michael Saunders described the increase as a result of “fairly temporary erratic factors” rather than the beginning of a new inflationary trend. He also suggested it was unlikely that the Bank would cut borrowing costs in February but anticipated “gradual” reductions later in the year, noting that inflation and wage growth remain “too high for comfort.”
The Office for National Statistics (ONS), which released the figures, identified transport prices—particularly airfares—as a key driver in the inflation rise due to the timing of return flights around the holiday season. Similarly, the increase in tobacco prices largely reflected the duty hikes announced in the Budget. Grant Fitzner, the ONS chief economist, added that increased food prices, especially for bread and cereals, also contributed to inflation rising. Despite the overall increase, some areas saw a slowdown; for instance, rents rose by 4.9% in December compared to 5.1% the previous month.
Reactions to the data have been mixed. Chancellor Rachel Reeves emphasized her focus on reducing living costs through measures such as freezing rail fares and prescription charges, declaring that “this is the year that Britain turns a corner.” On the other hand, shadow chancellor Mel Stride attributed the inflation increase to what he termed the government’s “economic mismanagement,” accusing it of imposing a “record-high tax burden and irresponsible borrowing” that is dampening growth and increasing inflation. Compared to European counterparts, the UK’s inflation rate remains elevated—December saw inflation at 2% in Germany and 0.7% in France. Sanjay Raja, UK chief economist at Deutsche Bank, anticipates a sharp drop in UK inflation in January and expects the Bank of England’s 2% inflation target to come into sight by spring, projecting the UK to experience the largest decline in headline inflation among G7 nations this year
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