The latest figures released by the Office for National Statistics (ONS) confirm a UK inflation jump to 3.4% in the year to December. This is up from 3.2% in the year to November and is higher than the expected increase to 3.3%. It’s the first increase in 5 months but analysts expect this to be a temporary trend.
Why has inflation risen?
Higher airfares and tobacco prices are the main contributors to the higher inflation rate. Airfare prices increased by 28.6% over the Christmas and New Year period. Although an increase is always expected during this period, the time over which the prices were measured differed from the previous year. This meant that airfare prices for December 2025 were compared with an especially low level in December 2024.
Tobacco prices were another key factor in the rise in inflation. Excise duty increases were recently introduced during the Autumn Budget held at the end of November 2025. These increases took effect in December 2025. Food costs have also risen, especially for bread and cereal. Annual food inflation increased to 4.5% from 4.2%.
Rent increases, on the other hand, didn’t rise as steeply as the previous year, helping to combat these factors. The increase in raw material costs also slowed due to lower oil prices.
How will this UK inflation jump affect interest rates?
The Bank of England base rate currently stands at 3.75%, with the next review to take place in February. Whilst there had been speculation of a cut following the review, experts are now stating that this will be unlikely.
The increase in inflation is expected to be temporary as timing issues contributed to the latest rate. It is, however, still sticky and well above the BoE’s target rate of 2%. Gradual interest rate cuts are expected during the year but they’re now not expected to happen as early as hoped.
Some economists are predicting a cut in April if wage growth softens, while others are not anticipating a cut until June.
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