UK inflation has hit 3.4% in December for the first time in five months, according to new data from the Office for National Statistics (ONS), sparking concerns that interest rate cuts are off the table.
The Consumer Price Index (CPI) rose above forecasts of a modest increase to 3.3%, driven largely by higher air fares and tobacco prices, with air fare inflation jumping an eye-watering 28.6% in December. This was not just a Christmas blip but rather the result of Chancellor Rachel Reeves' latest tax measures, which saw duties on tobacco products come into effect.
However, analysts are cautioning that this increase is likely only temporary, and core inflation – excluding volatile items such as energy and food – remained steady at 3.2%. The bigger-than-expected rise has led many to predict the Bank of England will keep interest rates unchanged in February but may finally cut them as early as April.
Wage growth continues to slow, with some economists predicting this trend will lead to a easing of services inflation over the coming months. This would be good news for consumers but less so for businesses already dealing with higher costs due to inflation.
Chancellor Reeves has vowed that 2026 will be "the year Britain turns a corner" on inflation, having introduced measures such as £150 off energy bills and freezes to rail fares and prescription charges. However, the latest data suggests more work is needed if she's going to hit her target of bringing inflation back in line with the Bank's 2% target by mid-year.
Meanwhile, rental prices are showing signs of slowing down, with average monthly private rents rising just 4% in the year to December – a decrease from the 4.4% rise seen in November and the lowest increase since May 2022. This is partly due to falling demand for lets as first-time buyers take advantage of easier mortgage conditions and slower house price rises.
The Consumer Price Index (CPI) rose above forecasts of a modest increase to 3.3%, driven largely by higher air fares and tobacco prices, with air fare inflation jumping an eye-watering 28.6% in December. This was not just a Christmas blip but rather the result of Chancellor Rachel Reeves' latest tax measures, which saw duties on tobacco products come into effect.
However, analysts are cautioning that this increase is likely only temporary, and core inflation – excluding volatile items such as energy and food – remained steady at 3.2%. The bigger-than-expected rise has led many to predict the Bank of England will keep interest rates unchanged in February but may finally cut them as early as April.
Wage growth continues to slow, with some economists predicting this trend will lead to a easing of services inflation over the coming months. This would be good news for consumers but less so for businesses already dealing with higher costs due to inflation.
Chancellor Reeves has vowed that 2026 will be "the year Britain turns a corner" on inflation, having introduced measures such as £150 off energy bills and freezes to rail fares and prescription charges. However, the latest data suggests more work is needed if she's going to hit her target of bringing inflation back in line with the Bank's 2% target by mid-year.
Meanwhile, rental prices are showing signs of slowing down, with average monthly private rents rising just 4% in the year to December – a decrease from the 4.4% rise seen in November and the lowest increase since May 2022. This is partly due to falling demand for lets as first-time buyers take advantage of easier mortgage conditions and slower house price rises.
like how can they charge 28.6% more on air fares its just insane I feel bad for people who are traveling or whatever 
but at the same time i get why the gov is trying to tax tobacco products, its a health issue and all that 
so yeah idk what the solution is here but it cant be good for anyone in the long run 