UK inflation rose for the first time in five months to 3.4% in December, pushed up by higher air fares and tobacco prices.
The Office for National Statistics (ONS) reported on Wednesday that the annual inflation rate increased from 3.2% in the preceding month after falling in October and flattening in the previous three months.
The ONS partly attributed the spike in the inflation as measured by the consumer prices index (CPI) to volatile items such as air fares, which rose by 28.6% in December as well as higher duties on tobacco products introduced by the chancellor, Rachel Reeves, in her autumn budget.
A news report from The Guardian of the UK quoted the chief economist at WPI Strategy, Martin Beck, as saying that the “December’s uptick in inflation should not set alarm bells ringing. The increase was largely driven by temporary and technical factors, not a broader resurgence in price pressures.”
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While the squeeze on the weekly grocery shop continued over the Christmas period, however, with annual food inflation rising again to 4.5%, from 4.2% in November, the ONS reported that the increase was particularly driven by a rise in the price of breads and cereals.
During the month under review, the ONS disclosed that Core inflation, which strips out more volatile items such as energy and food, remained the same as in November, but rose at an annual rate of 3.2% in December.
Services inflation, which is a measure closely watched by the Bank of England when deciding on interest rates but can be affected by more volatile categories such as air fares and hotel prices, rose to 4.5% from 4.4% in November, which was a smaller rise than economists had been expecting.
Commenting on the Services inflation, Yael Selfin, the chief economist at KPMG UK, said: “Despite services inflation increasing in December, this was not reflective of domestically generated price pressures and was largely driven by volatile categories, such as air fares.”
She said the Bank of England would probably look through December’s slight rise in inflation, “particularly with wage growth continuing to slow, which should see services inflation ease over the coming months”.
According to the CPI data, the bigger than forecast increase in CPI suggests the Bank of England’s monetary policy committee (MPC) will keep interest rates at 3.75% when it meets in February, with City traders not fully pricing in a cut until June.
However, many economists are forecasting a cut in April if price rises in the UK ease over the coming months alongside a softening in wage growth.
The Bank’s governor, Andrew Bailey, said last month he expected inflation to come back to about the MPC’s target of 2% by the middle of this year.
The Chancellor Exchequer, Rachel Reeves, made tackling the cost of living a key component of November’s autumn budget, alongside introducing £26bn of tax increases to help repair the public finances and fund the lifting of the two-child benefit cap.
After Wednesday’s CPI figure, Reeves pledged that 2026 would be the “year that Britain turns a corner” on inflation.
She explained: “My number one focus is to cut the cost of living. At the budget I announced £150 off energy bills, a freeze to rail fares for the first time in 30 years, a freeze to prescription charges for the second year running, and an increase to the national minimum and living wage.”
Meanwhile, separate data released by the ONS on Wednesday showed home rental prices rose at their slowest annual pace in more than three years last month as average monthly private rents increased by 4% in the year to December, down from 4.4% in November and the lowest rise since May 2022.
Demand for lets has been falling in recent months, with 14% more homes available compared with a year ago, according to the property portal Zoopla.
The ONS reported that the drop was partly down to first-time buyers leaving the rental market because it was easier to get a mortgage thanks to improved borrowing conditions, higher wage growth and slower house price rises.
