UK inflation rose for the first time in five months to 3.4% in December, driven by higher air fares and tobacco prices, according to the Office for National Statistics. The annual rate increased from 3.2% in November, surpassing City economists' forecasts of 3.3%.
The rise was partly due to volatile items such as air fares, which jumped 28.6% in December, and higher tobacco duties introduced in the autumn budget. However, analysts described the increase as temporary, with core inflation—excluding energy and food—remaining steady at 3.2%.
Services inflation, closely watched by the Bank of England, edged up to 4.5% from 4.4%, but was lower than expected. The Bank is now unlikely to cut interest rates from 3.75% in February, with traders pricing in a cut no earlier than June.
Chancellor Rachel Reeves said tackling the cost of living remains a priority, pointing to measures such as a £150 energy bill reduction and a freeze on rail fares. Meanwhile, separate ONS data showed private rental prices rose at their slowest annual pace in over three years, at 4% in December.
