LONDON — UK inflation rose unexpectedly to 3.4% in December 2025, the Office for National Statistics said Wednesday in its ONS consumer price inflation bulletin. It was the first increase in the annual rate since July 2025, driven largely by airfares and tobacco, even as forecasters and the central bank still expect inflation to cool again in coming months, Jan. 21, 2026.
The Consumer Prices Index was up from 3.2% in November and slightly above the median forecast of 3.3% in a Reuters poll of economists. Prices rose 0.4% on the month and the broader CPIH measure (which includes owner-occupiers’ housing costs) rose 3.6%, while core inflation held at 3.2% and services inflation ticked up to 4.5%. “For now it’s a speed-bump,” PwC economist Adam Deasy said.
What’s driving UK inflation higher
Transport costs were a key reason UK inflation rose. ONS said airfares climbed 28.6% in December, a bigger increase than a year earlier, reflecting the timing of return flights around Christmas and New Year.
Alcohol and tobacco prices also accelerated. The category rose 5.2% from a year earlier, up from 4.0% in November, after a tobacco duty increase on Nov. 26, 2025, fed through to retail prices later in the season, ONS said.
Food and nonalcoholic beverage prices rose 4.5% year over year, up from 4.2% in November. Offsetting some pressure, housing and household services inflation eased to 4.6%, helped by an 11-month slowdown in owner-occupiers’ housing costs.
Why UK inflation could cool again in 2026
The Bank of England’s December policy minutes had already anticipated a temporary bump tied to tobacco duty and airfares, while projecting inflation would ease toward about 3% in early 2026. The Office for Budget Responsibility’s November forecast likewise projected CPI inflation at 3.5% in 2025 and 2.5% in 2026.
Economists still expect the headline rate to drop as last year’s increases in some regulated and utility-linked bills fall out of the annual comparison. Reuters reported that Bank of England Governor Andrew Bailey has said inflation should be close to the 2% target by April or May, keeping alive expectations of further rate cuts after Bank Rate was reduced to 3.75% in December.
How today’s UK inflation print fits the recent cycle
The latest reading shows UK inflation remains above target, but far below the recent peak. In the May 2024 ONS bulletin, CPI inflation returned to 2.0% for the first time since 2021. In October 2022, by contrast, consumer prices were rising 11.1% year over year — the fastest pace since 1981 — as detailed in a Reuters report from November 2022.
For households, the December uptick is a reminder that progress on UK inflation can be uneven, especially when travel costs and taxes shift. The next official update, covering January, is due Feb. 18, and will show whether airfare volatility fades and whether tobacco’s contribution starts to unwind.
