UK inflation live: Inflation rose to 3.4% in December

Here’s a recap of this morning’s UK inflation headlines:

UK inflation, as measured by the Consumer Prices Index (CPI), rose to 3.4% in the 12 months to December, up from 3.2% in the year to November.Alcohol and tobacco, transport and food and non-alcoholic drinks were the main drivers of the uptick in inflation, particularly a 28.6% increase in air fares.The jump is widely expected to be short-lived. Bank of England forecasts expect UK inflation to fall to 3.0% in January.

It’s impossible to say for sure where inflation will head next, but the Bank of England has made predictions.

It projects that CPI will fall to 3% in January and to 2.5% by the fourth quarter of 2026.

Further down the line, it expects CPI will slow to 2% by the end of 2027 and then rise to 2.1% by the close of 2028.

The last time the CPI measure of inflation rose was in July 2025, when it ticked up to 3.8% from 3.6% the month before.

It stayed at 3.8% in August and September, fell to 3.6% in October and then slowed to 3.2% in November.

The ONS releases inflation data each month for the preceding month. That’s why the data released today covers the month of December.

The ONS will release inflation data for January on 18 February.

As previously mentioned, the ONS tracks price changes across a range of goods and services when reporting its inflation data. What is included in this basket of goods and services is subject to change each year.

In 2025, virtual reality (VR) headsets were added, as well as men’s sliders, cushions and ready-to-eat noodles.

Other items already in the basket were taken out, including fresh diced or minced turkey.

Because the ONS calculates inflation based on a representative basket of goods and services, which is subject to change, households will experience it differently.

For example, if more of your spending is weighted towards food or travel, any rises in these categories will be felt by you more.

Charlotte Kennedy, chartered financial planner at Rathbones, said: “While headline inflation guides monetary policy, it rarely captures the full picture of how price pressures are felt across the economy.”

(Image credit: ONS)

The Bank of England can increase interest rates to curtail rising inflation, but this tends to lead to higher mortgage rates.

That said, the central bank is keen to kick start the economy, so while immediate further rises in interest rates are not likely, mortgage borrowers may have to wait longer for cuts.

David Hollingworth, associate director at broker L&C Mortgages, said: “The rise in the rate of inflation in December was not unexpected but is a larger bump than many anticipated. That could be enough for the Bank of England to pause any thought of another cut when they meet in February.”

Hollingworth pointed out a lot of lenders had already priced further cuts to interest rates in 2026 into their fixed-rate mortgages, but today’s inflation data could “mean that we’re in for a period where the brakes are applied and mortgage rates flatten out”.

Caitlyn Eastell, finance expert at Moneyfacts, said the latest inflation data signalled bad news for savers.

The Moneyfacts Average Savings rate sits at 3.33% as of 21 January, lower than December’s rate of inflation.

Anyone with a savings account paying this level of interest is effectively losing money in real-terms and should switch to an account paying a higher rate.

Eastell said: “January is the ideal time for savers to set new financial goals and to check if their savings are working as hard as they can.”

According to Moneyfacts, the best-paying easy access account is currently with Chase, which is paying 4.41% interest (including a bonus rate).

The best one-year fixed bond is with Marcus by Goldman Sachs, paying 4.55%. The best easy access ISA is with Plum, paying out 4.28% in interest.

The chancellor Rachel Reeves has responded to this morning’s inflation data, saying that driving down people’s bills and everyday costs is her “number one focus”.

“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.

“Money off bills and into the pockets of working people is my choice. There’s more to do, but this is the year that Britain turns a corner.”

The policies announced by the government to drive down people’s bills are forecast by the Office for Budget Responsibility (OBR) to lead to a reduction in CPI inflation of 0.4 percentage points in the 2026/27 financial year.

(Image credit: OLIVER MCVEIGH)

The main drivers of the uptick in inflation in the 12 months to December were alcohol and tobacco, transport and food and non-alcoholic drinks.

Here’s a breakdown of exactly how much prices rose across these categories.

Alcohol and tobacco

Alcohol and tobacco prices rose by 5.2% in the 12 months to December. This was a sharp increase from 4% in the 12 months to November.

The ONS said the uplift was mostly caused by a rise to Tobacco duty in November.

Transport

Prices across the transport sector went up by 4% in December, a rise from 3.7% in November.

The spike was mainly caused by an increase in air fares, which rose by 28.6%.

Food and non-alcoholic drinks

Food and non-alcoholic beverages prices rose by 4.5% in the 12 months to December, up from 4.2% in the 12 months to November.

Both the CPI and CPIH measures of inflation, while rising slightly in December, have broadly fallen from peaks of 11.1% and 9.6%, respectively, in October 2022.

The CPI rate of 11.1% in October 2022, driven in part by soaring energy prices, was the highest the measure had been for four decades.

(Image credit: ONS)

The latest CPI inflation data is a blow for the Bank of England (BoE) which has a 2% target it is supposed to meet.

However, Alice Haine, personal finance analyst at investment platform Bestinvest by Evelyn Partners, said the December figures were just an uptick and inflation would come down in early 2026.

Haine said: “The combination of tax rises and spending restraints introduced in the Autumn Budget, along with a cooling labour market and slowing wage growth, are likely to act as a drag on prices.”

Haine also pointed to core inflation, which strips out more volatile items such as food, alcohol and tobacco, holding at 3.2% in December.

Core inflation is considered important because it provides a clearer picture of long-term price rises.

Let us know your thoughts by voting in our poll:

Inflation erodes the purchasing power of money.

It is related to interest rates, in that policymakers will generally raise rates when inflation is high (in order to reduce the amount of available money within the economy, which lowers demand and thus prices) and reduce them when inflation is low (in order to stimulate more economic activity).

But the relationship isn’t perfect, and other factors – particularly the overall health of the economy – impact interest rates. The UK is currently enduring a period of elevated inflation alongside lacklustre growth, meaning that interest rates are falling despite inflation running well above the 2% target rate.

That is bad news for savers in particular, because the returns on saved cash may not beat inflation, meaning that savings held for the long term are actually losing value in real terms.

(Image credit: Guido Mieth via Getty Images)

“Falling inflation puts the spotlight firmly on getting the best possible return,” said Harriet Guevara, chief savings officer at Nottingham Building Society. “As expectations grow that interest rates will start to come down, savings rates are likely to follow. That makes now an important moment to shop around, while competition between providers is still delivering strong returns.”

UK inflation looks set to come in somewhere above 3% in the December release.

But what is the longer-term outlook for UK inflation, and when is it likely to return to the 2% level that economists target?

It has been a turbulent few years for UK inflation.

Following the Covid pandemic, inflation was running at historically low levels – just 0.2% in August 2020. Most economists would argue that inflation rates this low are economically unhealthy; 2% is regarded as the optimal rate, which is why the Bank of England targets this level.

UK inflation data for the 12 months to December will be announced at 7am on 21 January.

We will bring you live analysis and reaction to the ONS data tomorrow morning following the release.

The latest Bank of England forecasts point to a jump to 3.5% in CPI inflation tomorrow.