December inflation numbers - 21st January 2026

The UK CPI inflation rate for the December 2025 was 3.4%, up a 0.2% from November.

Annual CPI inflation for December was up 0.2% from the previous month at 3.4%. A rise was expected, but the Reuters’ market consensus expectation had been for 3.3%.  In its December Monetary Policy Committee Minutes the Bank of England said “…Budget [measures], in combination with other news in recent CPI data and with some downward moves in sterling oil and gas futures curves since November, had led Bank staff to lower their expectation for CPI inflation to closer to 2% in 2026 Q2.” 

The 3.4% CPI figure came after yesterday’s 4.7% earnings growth (including bonuses) and 5.1% unemployment rate data. However, the earnings growth numbers need treating with caution as they break down to 7.9% for the public sector, but only 3.6% for the private sector. The public sector figure is distorted by pay rises being paid earlier in 2025 than in 2024, causing a base effect which will phase out over the next three months. The combined set of economic data suggests that the Bank of England is likely leave interest rates on hold at its next meeting on 5 February.  

The UK CPI reading was up 0.4% between November and December, whereas the corresponding period of 2024 saw a 0.3% increase. The CPI/RPI gap widened 0.2% to 0.8% with the RPI annual rate rising by 0.4% (to 4.2%). Over the month the RPI index added 0.7%. 

The ONS’s favoured CPIH index was up 0.1% at an annual 3.6%, narrowing again its margin over the CPI. As we have regularly said in recent months, a large part of that excess is due to the owner occupiers’ housing (OOH) category, which has a 17.1% weighting in the CPIH but is absent from the CPI. The OOH inflation rate dropped 0.3% to 4.2%, 3.8% off its peak January 2025 level and back to the level last seen in May 2023. 

The ONS attributed the rise in CPIH inflation to:

Main upward drivers

Alcohol and tobacco Prices in this division rose by 5.2% in the 12 months to December 2025, up from 4.0% in the 12 months to November. On a monthly basis, prices rose by 1.0% in December 2025, compared with a fall of 0.2% a year ago.

The rise in the yearly rate reflected an upward effect from tobacco, as tobacco duty was increased on 26 November 2025, In 2024 duty was increased on 30 October and the timing difference goes a long way to explaining why tobacco prices fell by 0.1% in the month of November 2025, and then subsequently rose by 3.0% in December 2025, dragging up the division.

Transport  Prices in this division rose overall by 4.0% in the 12 months to December 2025, up from 3.7% in the 12 months to November. On a monthly basis, prices rose by 1.3% in December 2025, compared with a rise of 1.0% a year ago.

The largest upward effect came from air fares, which rose by 28.6% in December 2025. This is something of a statistical aberration, stemming from the ONS practice of looking at ticket prices on only one day (the second or third Tuesday) in the month. As the ONS says, “…air fares rose by 16.2% last year, the third-lowest December rise since monthly price collection began in 2001. Part of the reason for the lower-than-usual growth in 2024 may have been because the return date for European flights in December 2024 was Christmas Eve and the return date for long-haul flights was New Year's Eve. In contrast, the return date for European flights in December 2025 was 23 December and the return date for long-haul flights was 30 December.” This difference alone would have been worth about 0.05% on the overall CPI annual figure, enough to nudge the actual 3.4% down to the consensus 3.3%. 

Food and non-alcoholic beverages  Food and non-alcoholic beverages prices rose by 4.5% in the 12 months to December 2025, up from 4.2% in the 12 months to November. On a monthly basis, food and non-alcoholic beverages prices rose by 0.8% in December 2025, compared with a rise of 0.5% a year ago.

Main downward driver

Housing and household services  The 12-month inflation rate for housing and household services was 4.6% in December 2025, down from 4.8% in November. On a monthly basis, prices rose by 0.2% in December 2025, compared with a rise of 0.4% a year ago. The easing in the 12-month rate between November and December 2025 mainly reflected a continued downward effect from owner occupiers' housing (OOH) costs (see above). 

Six of the twelve broad CPI divisions saw annual inflation increase, while five recorded a fall and one was unchanged. The categories with the highest annual inflation rate were Education (7.6%), Alcoholic beverage and tobacco (5.2%) and Housing, water, electricity, gas and other fuels (4.9%). Only one category, Furniture, household equipment and maintenance (-0.6%), recorded  an annual fall.

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) was unchanged at 3.2%. Goods inflation rose 0.1% to 2.2%, while services inflation, a focus for the Bank of England, was also up 0.1% at 4.5%. 

The ONS restarted issue of its Producer Price Inflation indices in September, but says that “The accredited official statistics status of these statistics is suspended, pending a review by the Office for Statistics Regulation.” With that caveat in mind:

• Producer input prices rose by 0.8% in the year to December 2025, down from a revised rise of 1.1% in the year to November 2025.

• Producer output (factory gate) prices rose by 3.4% in the year to December 2025, unchanged November 2025.

Source: Techlink Professional

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