UK inflation December 2025

The United Kingdom saw a rise in inflation to 3.4% in December, surpassing expectations of 3.3% according to economists polled by Reuters. This increase comes after a cooling period in November when the inflation rate dropped to 3.2%, prompting the Bank of England to cut interest rates at its final meeting of the year.

Core inflation, which excludes energy, food, alcohol, and tobacco, remained steady at 3.2% in December, as reported by the Office for National Statistics. Grant Fitzner, the Chief Economist at the ONS, attributed the slight uptick in inflation to higher tobacco prices due to excise duty increases, as well as increased airfares and rising food costs.

Despite these price hikes, there were offsetting factors such as a decline in rents inflation and lower prices for recreational and cultural purchases. The pound sterling remained stable against the dollar following the release of the data.

Chancellor Rachel Reeves indicated that the Bank of England anticipated a temporary rise in inflation before it is expected to decrease towards the central bank’s target of 2% in the coming months. However, the recent data, coupled with a cooling labor market, has raised uncertainty about the BOE’s planned rate cut in February.

Scott Gardner, an investment strategist at J.P. Morgan Personal Investing, suggested that a small monthly increase in prices is unlikely to concern policymakers in the short term. However, if pay growth continues to decline and impacts inflation, there may be pressure on the BOE to cut interest rates sooner than anticipated.

Matthew Ryan, head of Market Strategy at Ebury, projected that the BOE will maintain its current interest rates for the next few meetings. The arguments for potential upside risks to UK inflation have weakened in light of the deteriorating employment situation and moderating wage pressures.

Overall, the UK’s inflation rate is closely monitored by policymakers and analysts, with expectations that it will stabilize in the coming months. The uncertainty surrounding the BOE’s interest rate decisions will depend on a variety of economic factors, including inflation data for the remainder of the year.