UK inflation rises to 3.4%, driven by tobacco and airfares

Rising tobacco prices and airline tickets pushed the UK inflation rate to 3.4% by December, official figures show.

The rise in average prices – the first in five months – was above expectations after some economists had predicted only a slight increase.

But analysts do not think this is the start of a longer upward trend because December data includes one-off factors such as flight costs over Christmas and the increase in tobacco duty announced in the Budget.

The rise in inflation comes ahead of the Bank of England’s first meeting of the year to decide interest rates – ending 2025 by reducing the cost of borrowing to 3.75%.

Inflation rose from 3.2% during the year to November, above the forecast of 3.3%.

The Bank of England’s interest rate setting committee will meet on February 5.

Michael Saunders, the bank’s former rate setter, said the increase “is not the beginning of a new upward trend but reflects a variety of highly temporary variable factors.”

He said the bank was unlikely to cut borrowing costs in February but expected it to announce “gradual” cuts this year.

“The reason they can’t cut quickly is because inflation and wage growth are still too high for comfort,” he said.

The Office for National Statistics (ONS), which published the data in December, said flight tickets were a major contributor to inflation “due to the timing of return flights over the Christmas and New Year period”.

Tobacco prices have risen largely due to tax increases announced in the Budget on 26 November.

ONS chief economist Grant Fitzner added that “rising food prices, particularly for bread and cereals, are also a factor driving up inflation.”

In response to the figures, Chancellor Rachel Reeves said her priority was to reduce the cost of living, citing measures in the Budget such as rail fares and a freeze on prescription charges.

“There’s more to be done,” he said. “But this is the year Britain turns the corner.”

But shadow chancellor Mel Stride said the government’s “economic mismanagement” was to blame for the increase.

He said: “Record tax burdens and irresponsible borrowing are hindering growth and fueling inflation, leaving working people worse off.”

The data revealed that some elements of inflation, such as rents, eased in December.

Housing and household services, which measure rents, slowed to 4.9%, compared with a 5.1% increase in the 12 months to November.

Figures show transport prices rose 4% in the 12 months to December, mainly due to flights.

“This is largely down to timing differences,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.

The ONS said that when calculating the average inflation rate in December 2024, “flight prices measured were Christmas Eve and New Year’s Eve”.

However, he said they were recorded on December 23 and 30 in December 2025.

“Prices are naturally lower on peak days and holidays, and higher as people flock to get away at Christmas time,” Coles added.

The 4.5% increase in prices of food and non-alcoholic beverages was largely due to bread, cereals and vegetables.

Balwinder Dhoot, director of growth and sustainability at the Food and Drink Federation, said rising costs meant households were “feeling the pinch, leading to a subdued Christmas for the sector”.

“Low consumer confidence in the UK, combined with the prospect of ongoing geopolitical instability, is worrying for food and drink manufacturers facing rising costs and tighter budgets.”

Compared to its European neighbors, the UK’s December inflation rate was higher.

Inflation in Germany was at 2% until December; It was a year when inflation in England remained below Germany. In France, this rate was 0.7 percent.

Sanjay Raja, Deutsche Bank’s chief UK economist, predicted that UK inflation “will take a big fall in January”. He predicts the Bank of England’s 2% target will be “in sight” by spring.

“We actually think the UK will see the biggest fall in headline inflation among the G7 countries this year,” he said.