British inflation climbed by more than forecast in December, driven by higher air fares and tobacco prices, though economists still expect the fastest price growth among major advanced economies to ease markedly in the months ahead.
Investors largely maintained their expectations that the Bank of England will begin cutting interest rates later this year, after services inflation — a key measure closely monitored by the central bank — rose broadly in line with analysts’ projections.
Headline inflation increased for the first time since July, rising to 3.4% in December from 3.2% in November, according to data from the Office for National Statistics. That figure exceeded the median forecast of 3.3% in a Reuters poll of economists.
“Although the uptick is larger than expected, for now it’s a speed bump rather than a sign we’re veering off course on the path to price stability,” said Adam Deasy, an economist at PwC.
Bank of England still expected to cut rates in 2026
Services inflation edged up to 4.5% in December from 4.4% in November, matching expectations in the Reuters poll.
Despite relatively weak economic growth, inflation in Britain remains the highest among the Group of Seven nations.
However, economists anticipate a sharp slowdown in price pressures in the coming months as last year’s increases in energy bills and other government-regulated costs drop out of annual comparisons.
BoE Governor Andrew Bailey has previously said inflation is likely to be close to the central bank’s 2% target by April or May.
Following the data release, sterling and market expectations for future BoE interest rate moves showed little reaction.
