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 rose from 3.2% in November, exceeding City economists' forecasts of 3.3%.
Air fares jumped 28.6% in December, partly due to comparison with low prices a year earlier, while higher tobacco duties from the autumn budget took effect. Core inflation, excluding energy and food, remained at 3.2%, and services inflation edged up to 4.5% from 4.4%.
Analysts described the rise as temporary, but traders have ruled out a Bank of England interest rate cut in February. Many economists still expect a cut in April if inflation eases and wage growth softens. The Bank's governor, Andrew Bailey, has forecast inflation returning to the 2% target by mid-2025.
Chancellor Rachel Reeves pledged 2026 as the year Britain turns a corner on inflation, highlighting measures such as a £150 energy bill discount and a freeze on rail fares. Separate ONS data showed private rental prices rose 4% annually in December, the slowest pace since May 2022.
