UK inflation rose to 3.4% in December, the first increase in five months, driven by higher air fares and tobacco prices. The Office for National Statistics (ONS) reported the annual rate climbed from 3.2% in November, exceeding economists' forecasts of 3.3%.
Analysts described the rise as likely temporary, but City traders have all but ruled out a Bank of England interest rate cut in February. Air fares jumped 28.6% in December, partly due to comparison with unusually low prices in 2024, while higher tobacco duties from the autumn budget took effect.
Food inflation rose to 4.5% from 4.2%, driven by bread and cereal prices. Core inflation, excluding energy and food, held steady at 3.2%. Services inflation edged up to 4.5% from 4.4%, a smaller rise than expected.
Chancellor Rachel Reeves said tackling the cost of living remains a priority, citing measures from the autumn budget including energy bill reductions and rail fare freezes. Separate ONS data showed private rental prices rose 4% annually, the slowest pace since May 2022.
