The UK’s inflation rate rose for the first time in five months, reaching 3.4% in December, according to the latest figures from the Office for National Statistics (ONS). This slight uptick, which exceeded economists’ forecasts of a 3.3% increase, suggests the Bank of England will likely keep interest rates unchanged when its Monetary Policy Committee meets in February.
The rise in inflation was driven in part by volatile factors, such as higher air fares and tobacco prices over the Christmas period. Additionally, the cost of bread and cereals also pushed up the overall consumer price index (CPI). However, the ONS chief economist, Grant Fitzner, noted that the increase was modest and not reflective of broader domestic price pressures.
The Bank of England is closely monitoring the situation, with most economists now expecting a potential interest rate cut in April if price rises continue to ease in the coming months. Yael Selfin, chief economist at KPMG UK, commented that the December data is likely to “close the door on a February interest rate cut,” although further reductions later in the year remain a possibility.
Chancellor Rachel Reeves has made tackling the cost-of-living crisis a key priority, with measures announced in the recent autumn budget, including £150 off energy bills, a freeze on rail fares and the national minimum wage, and a continued freeze on prescription charges. Despite the latest uptick, inflation is still expected to fall overall in 2026, having been on a downward trajectory since reaching a peak of 3.8% in September.
The Bank of England expects inflation to near its 2% target by the middle of this year, as the impact of various government support measures and easing price pressures take effect. Employment data released earlier this week also suggests that inflationary pressures on the UK economy are softening, with wage growth slowing in the three months to November.
