INFLATION rose from 3.2% to 3.4% in the UK in December in the first increase in six months as experts warned the Bank of England’s “2% target is now a pipe dream”.
The Consumer Prices Index (CPI) rose by 3.4% in the 12 months to December 2025, up from 3.2% in the 12 months to November, Office for National Statistics data revealed.
On a monthly basis, CPI rose by 0.4% in December 2025, compared with a rise of 0.3% in December 2024.
Alcohol and tobacco, and transport made the largest upward contributions to the monthly change in both CPIH and CPI annual rates.
Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.2% in the 12 months to December 2025, the same rate as the 12 months to November.
The CPI goods annual rate rose from 2.1% to 2.2%, while the CPI services annual rate rose from 4.4% to 4.5%.
Pipe dream
Ben Perks, Managing Director at Stourbridge-based Orchard Financial Advisers, said the Bank of England’s 2% inflation target is looking like a “pipe dream”.
He added: “We’re more likely to see a David and Brooklyn public embrace than a 2% inflation figure. This increase was widely predicted due to changes in tobacco tax and travel over Christmas. But it shows how volatile the UK’s inflation is and we’re a long way away from stability.
“The 2% target seems to be a pipe dream and targets need to be reasonably adjusted. Constantly missed targets do nothing to help borrowers in the UK.”
Philly Ponniah, Chartered Wealth Manager and Financial Coach at Philly Financial, said she was not shocked with the figures.
She continued: “This rise to 3.4% is not a shock, but it is a sober reminder that inflation is proving sticky rather than solved. Core inflation holding at 3.2% shows pressures are lingering in everyday services, not flaring up again, but also not disappearing.
“Looking ahead to 2026, inflation is likely to ease only gradually, with bumps along the way rather than a smooth return to 2%, as wage growth and services costs stay elevated.
“For rates, this makes quick cuts unlikely. The Bank of England will want clearer evidence inflation is beaten, so mortgage rates may drift down but borrowers should not expect a return to ultra-cheap deals.”
Inflation is proving sticky
David Belle, Founder and Trader at Fink Money, said the public sector pay rises are to blame.
He added: “What is funny in this context is if we look at inflation remaining sticky whilst public sector pay is up hugely and private sector pay is relatively subdued in comparison. Then to get even more of a laugh, look at the productivity growth of the public vs private sector. Correlation or causation?
“The amount of public sector jobs that have been added that 1) costs the taxpayer more and 2) expands the deficit meaning more borrowing is insane. Remember, the public sector is paid for by the taxpayer. If the taxpayer doesn’t fund them, the government goes to the bond market. Then you have the Labour Party asking why we’re at the mercy of the bond market.”
Colin Low, Managing Director at Ipswich-based Kingsfleet, said that global events are to blame.
He continued: “There has been mounting evidence of inflationary pressures, not just in the UK, but globally.
“The wide consensus of falling rates during this year is now under serious challenge and geopolitical uncertainty is adding to this increasing uncertainty.”
Mounting evidence of inflationary pressures
Scott Gallacher, Director at Leicester-based Rowley Turton, said wage growth is helping offset inflationary pressures.
He added: “Higher inflation is disappointing but far from a surprise. The good news is that strong wage growth protects many people in work, but not everyone benefits. Even then, this is a catch-22, as wage rises risk feeding further inflation over time and making UK exports less competitive.
“With this backdrop of persistent price pressures and strong wage growth, it’s hard to see much scope for interest rate cuts from the Bank of England in 2026, meaning little chance of meaningful relief for mortgage borrowers.”
Rohit Parmar-Mistry, Founder at Burton-on-Trent-based Pattrn Data, worries that the Bank of England will now raise the base rate.
He continued: “Raising interest rates won’t fix the price of trains or tobacco; it just punishes the passengers. I see this in the tech sector all the time: systems optimised for the wrong variables that end up destroying real value.
“The prediction for 2026? Unless we rewrite this economic operating system to value human stability over theoretical efficiency, the Bank of England will keep blindly pulling the lever, acting like a machine that creates poverty just to balance a spreadsheet.”
Colette Mason, Author & AI Consultant at Clever Clogs AI, said sticky inflation isn’t going away any time soon.
He added: “We’ve spent months pretending the cost crisis was over, when any business owner watching their supplier invoices knew better. This confirms that the fundamentals haven’t changed, just the hopeful headlines. The services inflation figure is a concern: 4.5% and climbing.
“That’s not fuel prices bouncing around or seasonal price hikes. That’s the persistent, structural stuff: wages, rents, professional services, the costs you can’t dodge or defer easily. For small businesses already running lean this is a cash flow warning. The Bank of England is trapped. Cut rates and it risks stoking inflation further. Hold steady and it strangles businesses counting on cheaper borrowing to survive.”
Michelle Lawson, Director at Fareham-based Lawson Financial, said normal Brits will feel inflation in their pockets.
He continued: “Rachel Reeves’ rollercoaster economy continues with today’s latest non shock. The pillaging of businesses due to hiking taxes and rising wages will be passed on to the consumer cue rising inflation. Government have been told and warned but they continue with their fag packet ‘plan’ which appears to be the ultimate destruction of the UK.”
