Inflation rises to 3.4% – Rest Less

Inflation rose by more than expected to 3.4% in the 12 months to December, according to the latest data from the Office for National Statistics (ONS), up from 3.2% in the year to November.

Core inflation, which strips out more volatile food and energy prices, stayed at 3.2% in December, the same rate as in November, while services inflation rose to 4.5% in December, up from 4.4% in November. Food inflation rose to 4.5%, following a sharp drop in November. You can read about some of the ways you might be able to reduce your food costs in our guide 21 ways to save money on your food bills.

Meanwhile, the Retail Prices Index (RPI) measure of inflation, which includes housing costs, increased to 4.2% in the 12 months to December, up from 3.8% in November.

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the online investment platform, said: “The rise was driven by higher alcohol prices and a rise in tobacco duties announced in the Autumn Budget alongside strong demand for Christmas getaways pushing up airfares during the festive travel period.

“The December uptick is expected to be short-lived, with the slowdown in price pressures seen in the final few months of 2025 set to resume this year. The combination of tax rises and spending restraints introduced in the Autumn Budget, along with a cooling labour market and slowing wage growth, are likely to act as a drag on prices.

“The Bank of England believes inflation has already peaked, with the headline figure expected to ease back towards its 2% target by the end of this year. Lower inflation, coupled with unemployment at a five-year high of 5.1% and easing wage growth are likely to pave the way for further interest-rate cuts in 2026. However, that relief might not happen as soon as households would like. Financial markets currently view a Spring rate cut more likely than a move at the Monetary Policy Committee’s next meeting in early February.”