UK Inflation Rate Accelerates to 3.5%

UK consumer price inflation rose to 3.4% in December 2025, up from November’s eight-month low of 3.2% and slightly above market expectations of 3.3%. This year-end acceleration, the first since July, could complicate the Bank of England’s efforts to guide inflation back toward its 2% target, though the rise is expected to be temporary thanks to government interventions. The increase was largely driven by higher prices for alcohol and tobacco, which jumped to 5.2% from 4.0% in November due to the timing of tobacco duty changes, and transport costs, which rose to 4.0% from 3.7% on the back of higher airfares. Additional upward pressure came from food and non-alcoholic beverages (4.5% vs. 4.2%). Services inflation, a key gauge of domestic price pressures for the BOE, edged up slightly to 4.5% from 4.4%, below expectations. Core inflation, which excludes volatile items like unprocessed food and energy, remained steady at 3.2%, marking its lowest level since December 2024.

The annual inflation rate in the UK slowed to 3.2% in November 2025, the lowest in eight months, compared to 3.6% in October and forecasts of 3.5%. The figure is also lower than the Bank of England's prediction of 3.4%. The largest downward contribution came from prices for food and non-alcoholic beverages (4.2% vs 4.9%), particularly bread and cereals, where the prices of products such as cakes, biscuits and breakfast cereals fell this year. Prices also slowed for alcohol and tobacco (4% vs 5.9%), reaching the lowest since December 2022; transport (3.7% vs 3.8%); and housing and utilities (5.1% vs 5.2%), including actual rents for housing (3.8% vs 4.1%). Services inflation eased to 4.4% from 4.5%, below the central bank forecasts of 4.5%. In addition, cost fell for clothing and footwear (-0.6% vs 0.3%), mostly women's clothing. Prices for recreation and culture rose 2.9%, the same as in October. Compared to the previous month, the CPI fell 0.2%, the biggest decline since July 2024.

The UK’s annual inflation rate eased to 3.6% in October 2025, the lowest level in four months, down from 3.8% recorded in each of the previous three months. The figure came in line with expectations from both the Bank of England and market analysts. Prices slowed for housing and utilities (5.2% vs 7.3%), namely gas (2.1% vs 13%) and electricity (2.7% vs 8%) due to a change in the Office of Gas and Electricity Markets energy price cap in October. Smaller price increases were also seen for restaurants and hotels (3.8% vs 3.9%), services (4.5% vs 4.7%) and clothing and footwear (0.3% vs 0.5%). On the other hand, inflation for transportation was unchanged at 3.8% while it accelerated for food and non-alcoholic beverages (4.9% vs 4.5%) and recreation and culture (2.9% vs 2.7%). Compared to the previous month, the CPI rose 0.4%, following a flat reading in September and matching forecasts. Meanwhile, annual core inflation dropped to a six-month low of 3.4%.