UK inflation increased to 3.4% in December 2025, driven by sharp rises across food, alcohol and tobacco and transport sectors, ONS data has revealed.
The Consumer Price Index (CPI) increased by 0.4% month-on-month, the first hike in five months and is 0.9% more compared to December 2024.
But Chancellor of the Exchequer Rachel Reeves insisted that inflation would soon fall, as rail fare freezes and energy bill cuts are implemented.
Reeves said: “When those measures come in, we expect to see that sharp decline in inflation, which is obviously good news for families across our country.
“Money off bills and into the pockets of working people is my choice.”
The Bank of England’s target for inflation is 2%, a figure not met since May 2024.
The CPI had been consistently falling since a peak of 3.8% in July, falling to 3.2% in November.
Food, tobacco and transport drive price pressures
Inflation within the alcohol and tobacco sector spiked to 5.2%, a sharp rise from 4%, while stubborn food and alcohol prices hiked to 4.5%, up 0.3%.
The ONS report cites an increase in tobacco duty implemented on November 26, with an extra £2.20 charged per 100 cigarettes as duty increased to Retail Price Index plus two percentage points.
Monthly, prices across alcohol and tobacco rose by one percent having fallen by 0.2% a year ago.
Transport jumped to 4% as air fares dragged sky-high, rising by 28.6% – a 12% increase on the same liftoff during the 2024 Christmas period.
The average price of petrol increased by 1.3pence per litre to 136pence, diesel settling at 145.7pence at a jump of 1.9pence per litre.
The ONS claim that a key factor towards this gap was the return dates for European and long-haul flights being one day earlier on the 23 and 30 December.
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Bank of England rate decision in focus
Core CPI, which excludes energy, food, alcohol and tobacco, rose to 3.2% for a joint-lowest rate since 12 months ago.
Food and non-alcoholic beverage prices rose by 0.8% as the cost of living continues to squeeze.
The 4.5% inflation has stabilised from 5.1% in May. However has failed to downtrend since April 2024.
Conservative Shadow Chancellor of the Duchy of Lancaster, Alex Burghart, blamed tax rises for the squeeze on food prices.
Burghart said: “The Chancellor has put totally unnecessary increases in National Insurance contributions and in business rates and that’s causing business to put up their prices.”
Inflation is a key factor when judging the UK interest rate, determined by the independent Bank of England whose rate-setting committee will meet in early February.
The rate could be cut by up to 0.5% from 3.75% due to positive medium-term projections that the 2% target could be met by April 2026.
A risk being judged by the Bank of England will be the lack of beneficial movement in Core CPI.
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