The UK’s consumer price index (CPI) rose unexpectedly to 3.4% in December 2025, up from 3.2% the previous month, according to the Office for National Statistics (ONS). This surprise increase was driven by a rise in airfares, transport costs, and tobacco prices.
The CPIH, which includes household costs, also climbed to 3.6% for the 12 months to December. ONS chief economist Grant Fitzner explained that the uptick was partly due to higher tobacco prices following recent duty increases, as well as a jump in airfares likely linked to the timing of Christmas and New Year travel.
Rising food costs, particularly for bread and cereals, were also a contributing factor. However, these were partially offset by a fall in rental inflation and lower prices for recreational and cultural purchases.
Chancellor of the Exchequer Rachel Reeves acknowledged the pressure on household budgets, stating that her “number one focus is to cut the cost of living.” She highlighted measures announced in the recent budget, including £150 off energy bills, a freeze on rail fares and prescription charges, and increases to the national minimum and living wage.
Despite the unexpected rise, analysts believe the overall trend remains downward, with KPMG UK’s chief economist Yael Selfin suggesting that the drivers behind December’s inflation were “not necessarily one which should continue to impact” and that a 2% rate could be reached in the coming months.
However, the inflation data, combined with unemployment remaining at 5.1%, makes it almost certain that the Bank of England will not cut interest rates further when the Monetary Policy Committee next meets in February. Analysts and markets are still pricing in two cuts over the course of the year, but these are expected to come later.
Consumers are being urged to ensure their savings accounts are earning the highest possible interest rates to protect their purchasing power in the face of rising prices. Money experts also suggest that households may need to cut back on discretionary spending and shop around for better deals on household bills to cope with the continued squeeze on real incomes.