Pressure piles on Bank of England ahead of February rate call
Higher tobacco prices, airfares and food costs pushed UK inflation up to 3.4% in the year to December, the first increase in five months and a figure that will sharpen the focus on the Bank of England’s next interest rate decision.
The latest Consumer Prices Index (CPI) reading, published by the Office for National Statistics (ONS), overshot many economists’ expectations of a smaller rise to 3.3%. It marks a renewed move away from the Bank’s 2% target and comes at a sensitive moment for rate‑cut hopes in 2026.
According to the ONS, transport costs were a major driver, with airfares rising more sharply than a year earlier, partly reflecting the timing of return flights over the Christmas and New Year period. An increase in tobacco duty introduced in late November also fed through into the figures, alongside rising food costs which added further upward pressure. These were only partly offset by easing rents inflation and lower prices for some recreational and cultural goods and services.
December’s release is the final set of inflation data before the Bank of England’s February meeting, where markets had been weighing the timing and speed of potential rate cuts. A stickier‑than‑expected print complicates the picture for policymakers who have been signalling that price growth was largely under control after inflation fell from a peak of 11.1% in October 2022 to a low of 1.7% in September 2024.
Commenting on the figures, Kris Brewster, Director of Retail Banking at LHV Bank, warned that the latest move will unsettle households and raise fresh questions over the Bank’s policy stance.
“This rise in CPI inflation to 3.4% will worry many people and raises fresh questions about the Bank of England’s grip on the economy. After repeated signals that price growth was coming under control, this move shows how uncertain the position still is, especially as services costs remain high.
“After missing its target for well over a year, it is hard to argue that the Bank has inflation firmly under control. Each setback adds more pressure on households who are already struggling with high bills and wages that are not keeping pace.
“In this environment, people cannot rely on the wider economy to protect their spending power. Making active choices matters. Using savings and current accounts that still reward loyalty, and shopping around for better rates, helps money work harder and can soften the impact of rising costs.”
The figures also reignited political debate. Chancellor Rachel Reeves said her priority remained cutting the cost of living, pointing to measures such as a freeze on rail fares and prescription charges announced in the November Budget, while Shadow Chancellor Mel Stride blamed the rise on what he called the government’s “economic mismanagement”.
