UK inflation (CPI) rose to 3.4% in December, up from 3.2% in November, marking the first increase in six months and underscoring ongoing cost pressures for businesses even as overall inflationary momentum eases.
The UK’s Consumer Prices Index (CPI) unexpectedly climbed to 3.4% in the year to December 2025, above consensus expectations of around 3.3% and reversing a series of months of downward movement. The latest Office for National Statistics data show this as the first rise in inflation in half a year, reflecting higher costs across transport and excise-linked categories.
Higher prices for air fares and tobacco were notable contributors to the upward shift, particularly over the Christmas and holiday period, while food and communications costs also added upward pressure.
“Transport and alcohol-related prices were among the largest contributors to the rise in the headline rate,” the ONS noted in its official release. The inflation figure remains well above the Bank of England’s 2% target and complicates the outlook for both consumers and businesses.
For consumer-facing industries, the inflation uptick reinforces the challenge of absorbing or passing through costs without eroding demand. Travel and leisure companies have been contending with higher air travel and accommodation prices, which feed through into their cost bases and consumer bills. Retailers, particularly those selling discretionary goods, continue to balance inventory and pricing strategies amid volatile input costs.
Although broader inflation has eased from peaks seen over the past year — CPI was lower in November at 3.2%, the weakest in eight months — the December rise shows that price pressures have not disappeared. Unlike headline CPI, measures that strip out volatile components such as energy, food, alcohol and tobacco have remained more stable and suggest underlying price trends are less uneven, but not uniformly subdued.
The inflation rise coincides with a cooling UK labour market and slower wage growth, which, while reducing one dimension of cost pressure, also reflects softer demand for labour. ONS data this week showed private sector wage growth slipping to around 3.6%, its weakest in several years, amid headcount reductions in some sectors.
Falling wage growth can ease some inflationary pressures for employers, but it also signals subdued economic momentum. Coupled with inflation readings above target, this creates a nuanced environment for corporate planning: businesses face persistent input costs while consumer spending power and labour demand remain fragile.
Producer prices — a signal of future business cost pressures — also rose modestly, with output prices increasing year-on-year in December, indicating that firms are still contending with elevated expenses at the factory gate.
Monetary policymakers have responded to the broader disinflation trajectory with rate reductions; the Bank of England lowered the Bank Rate to 3.75% in December 2025 after inflation slowed earlier in the year. However, the recent inflation uptick may temper expectations for immediate further cuts.
Bank officials have projected that inflation will continue its descent toward the 2% target by mid-2026, a forecast that incorporates weakening wage growth and easing import prices. For business leaders, the latest inflation data underscore the importance of cost management and pricing strategy at a time when sector-specific price movements — transport, leisure, and excise-taxed goods — are dictating competitive dynamics, even as headline pressures generally recede.
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