Inflation in the UK has risen for the first time in five months to 3.4% in December, according to official figures, suggesting the Bank of England will hold off from making a change to interest rates next month.
The Office for National Statistics said the annual inflation rate, as measured by the consumer prices index (CPI), increased from 3.2% in November, after falling in October and flatlining in the previous three months. The figure overshot City economists’s forecasts of a modest rise to 3.3%.
The increase in inflation suggests the Bank of England’s rate-setting committee will keep interest rates at 3.75% when it meets in February. However, most economists are now expecting a cut in April if price rises in the UK ease over the coming months.
Despite the rise, inflation is still expected to fall overall in 2026, having been on downward trajectory since September’s 3.8% reading. The Bank of England expects inflation to near target of 2% by the middle of this year.
The chancellor, Rachel Reeves, made tackling the cost of living a key target of November’s autumn budget, alongside £26bn of tax increases to help repair the public finances and fund the lifting of the two-child benefit cap.
The Bank has said it expects her measures, including relief on energy bills, prescription charges and fuel duty, to cut headline inflation this year.
Employment figures released on Tuesday also suggest that inflationary pressures on the UK economy are softening, with wage growth slowing in the three months to November to 4.5%, down from 4.6% in the three months to October.
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