Official figures show that UK inflation rose over the Christmas period for the first time in five months, driven by higher tobacco prices as a result of tax rises announced by the Chancellor and a sharp rise in airfares.
Data released on Wednesday by the Office for National Statistics showed consumer price inflation rose to 3.4 percent in December, compared with 3.2 percent in November, above economists’ expectations. It marked the first rise in inflation since July last year and keeps price growth well above the Bank of England’s 2 percent target.
When Labor took office in July 2024, inflation was 2.2 percent.
The ONS said the increase was largely due to a rise in tobacco prices, as well as higher airfares and rising food costs. In her budgets for October 2024 and November 2025, Chancellor Rachel Reeves increased tariffs on cigarettes and other tobacco products and introduced a new tax on e-cigarettes.
Alcohol and tobacco inflation rose to 5.2 percent in December, up from 4 percent the previous month, while airfares rose 28.6 percent year-on-year. Food inflation also rose slightly, rising from 4.2 percent to 4.5 percent, with bread and grains among the biggest contributors.
Paul Dales, chief UK economist at Capital Economics, said the timing of the budget played a key role in the data. “As the budget was later than usual on November 26, the rise in tobacco tariffs was only recorded in the ONS’ December survey,” he said.
Grant Fitzner, chief economist at the ONS, said inflation “increased a little” in December, partly due to increases in excise duties on tobacco. He added that airfares had increased more than a year earlier, “probably due to the timing of return flights over Christmas and New Year.”
Some price pressure was offset by weaker inflation in leisure and cultural activities, resulting in downward pressure on the overall index.
The rise in inflation comes days after the ONS reported that unemployment remained at 5.1 percent, a near five-year high, even though economic output grew faster than expected by 0.3 percent in November.
Responding to the data, Reeves said that “the government’s main focus is to bring down the cost of living,” adding that “this is the year the UK turns a corner.” She spoke from Davos, Switzerland, where she attends the annual World Economic Forum.
Economists at the Bank of England expect the rise in inflation to be short-lived and price growth is expected to fall back towards the 2 percent target by the spring as household energy bills fall. Financial markets are pricing in two interest rate cuts this year, which would raise the base rate from 3.75 percent to 3.25 percent in 2025 after four cuts.
Nicolas Crittenden, associate economist at the National Institute of Economic and Social Research, said the increase was not an indication of ongoing inflationary pressures. “Higher tobacco taxes and airlines raising prices for holiday travelers are the main reasons for this small increase and do not indicate lasting price increases in the broader economy,” he said.
Services inflation, a closely watched measure of domestic price pressures, rose to 4.5 percent in December, compared with 4.4 percent the previous month. Core inflation, which excludes volatile food and energy prices, was unchanged at 3.2 percent.
