UK inflation rose to 3.4% in December, marking its first increase in five months and reducing expectations of an early interest rate cut. The rise, up from 3.2% in November, was slightly higher than forecasts and driven mainly by temporary factors including higher air fares and increased tobacco duties.
Air fares jumped sharply over the Christmas period, while tax rises on tobacco introduced in the autumn budget also pushed prices higher. Economists said these factors are unlikely to signal a renewed surge in underlying inflation.
Food prices continued to put pressure on household budgets, with annual food inflation rising to 4.5%, led by higher prices for bread and cereals. Core inflation, which excludes volatile items such as food and energy, remained unchanged at 3.2%.
Services inflation edged up to 4.5%, largely due to seasonal and volatile components rather than domestic price pressures. Analysts expect inflation to ease again over the coming months as wage growth slows.
Following the data, financial markets have largely ruled out an interest rate cut at the Bank of England’s February meeting, with expectations now shifting toward spring or early summer. Policymakers are still expected to keep rates at 3.75% in the near term.
Separate data showed a slowdown in rental price growth, with private rents rising at their weakest annual pace in more than three years, reflecting easing demand and improved access to mortgages for some buyers.
