UK inflation rises unexpectedly to 3.4% as Britons feel squeeze

UK inflation rose unexpectedly in December, driven by increases in airfares, transport costs, and tobacco prices.

The surprise climb to 3.4 per cent – up from 3.2 per cent in November 2025 – came despite a fall in rents and price rises slowing for everyday groceries such as butter and tea, the Office for National Statistics (ONS) said.

The uptick in consumer price inflation (CPI) was partly due to airfares rising 11.0 per cent year-on-year, a much larger increase than the rise of just 0.3 per cent in November. This was likely to have been down to higher demand for travel over the Christmas period, including the timing of school holidays.

Prior to December’s numbers, CPI had held at the same rate or fallen for four consecutive readings, starting from July’s 3.8 per cent level. CPIH, the inflation figures including household costs, rose to 3.6 per cent for the 12 months to December.

ONS chief economist Grant Fitzner explained: “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.

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“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.”

Reacting to the news, Chancellor Rachel Reeves said: “My number one focus is to cut the cost of living. At the budget, I announced £150 off energy bills, a freeze to rail fares for the first time in 30 years, a freeze to prescription charges for the second year running, and an increase to the national minimum and living wage.

“Money off bills and into the pockets of working people is my choice. There’s more to do, but this is the year that Britain turns a corner.”

Along with transport costs and tobacco, there were also smaller monthly rises for clothing and footwear, restaurants and hotels, plus food and non-alcoholic drinks. In the latter category, there were rising prices noted in breads and cereals as well as vegetables.

Adding inflation data to the wider economic state of the nation, which this week saw unemployment remain at 5.1 per cent, it is now almost certain that the Bank of England will not reduce interest rates any further when the Monetary Policy Committee (MPC) next meets in February.

Analysts and markets are still pricing in two cuts during the course of the year, but these are currently expected to come later.

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Yael Selfin, chief economist at accounting firm KPMG UK, explained that the source of December’s rise in inflation wasn’t necessarily one which should continue to impact and that the trend remained downward – with a return to the target of 2 per cent inflation rate possible in the coming months.

“Despite services inflation increasing in December, this was not reflective of domestically generated price pressures and was largely driven by volatile categories, such as airfares,” she said. “The MPC will likely look through it, particularly with wage growth continuing to slow, which should see services inflation ease over the coming months.

“Headline inflation increased to 3.4 per cent in December but is likely to fall gradually over the coming months, with energy and food prices set to ease. We expect inflation to return to the Bank of England’s target in the spring.”

In terms of consumers’ money, Derek Sprawling, head of money at savings app Spring, urged people to ensure their savings accounts were earning as high an interest rate as possible.

Having an interest rate higher than the rate of inflation ensures your cash does not lose value, or buying power, over a period of time.

“A rise in inflation tightens the squeeze on cash, and with savings rates already easing from last year’s peaks, the gap can widen quickly,” he said. “Savers should act now, review their rate, move out of low-paying legacy or bonus-ended accounts and check comparison sites for the best rates on the market, but also for their personal circumstances.

“In a high inflation yet reducing rate market, being proactive is the best defence for your hard-earned savings.”

The best savings accounts on the market can still earn up to 4.5 per cent.

Meanwhile, Sajni Shah, a money expert at Compare The Market, suggested people would respond by cutting spending where possible. “This will only lead to more households feeling the pinch. With the UK unemployment rate above 5 per cent and consumer spending on non-food items flatlining in December, rising prices could squeeze real incomes further,” they said.

“In this environment, families may feel forced to cut back on discretionary spending and rely more on borrowing just to cover the basics. Those looking to save might want to consider shopping around for more competitive deals, which could help to reduce their household bills.”