UK inflation rose to 3.4% in December, the first increase in five months, driven by higher air fares and tobacco prices, according to the Office for National Statistics (ONS). The annual rate climbed from 3.2% in November, exceeding City economists' forecast of 3.3%.
The rise was partly due to a 28.6% jump in air fares over Christmas, compared with a low base in 2024, and higher tobacco duties introduced by Chancellor Rachel Reeves in the autumn budget. However, analysts described the uptick as temporary, with core inflation—excluding energy and food—remaining at 3.2%.
Services inflation, closely watched by the Bank of England, edged up to 4.5% from 4.4%, but economists noted it was driven by volatile categories like air fares. The Bank is now unlikely to cut interest rates from 3.75% in February, with traders pricing in a cut only by June.
Food inflation rose to 4.5% from 4.2%, driven by bread and cereals. Meanwhile, separate ONS data showed private rental prices grew at their slowest annual pace in over three years, at 4% in December, down from 4.4% in November.
