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Inflation rises to 3.4% in first increase in six months in "sobering reality check" to the UK

ended 21. January 2026

Inflation rose from 3.2% to 3.4% in December in the first increase in six months in a “sobering reality check” to the UK.

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%.

  • What is your reaction to the data? Was this expected?
  • What are yiour predictions for 2026?
  • What does it mean for mortgage rates/Bank of England base rate etc

Responses asap please.

11 responses from the Newspage community

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Darryl Dhoffer
Founder at The Mortgage Geezer
The recent uptick in UK inflation to 3.4%, up from 3.2% in November, has delivered a sobering reality check to the mortgage market. Just as borrowers exhaled, hoping the worst was over, this reversal threatens a new cycle of pain.
The mechanism is brutal but simple: sticky inflation forces the Bank of England to keep the base rate higher for longer. The bond markets react instantly. Investors, demanding better returns to offset inflation, sell off government bonds, causing gilt yields to rise.
This is the recipe for disaster. Fixed-rate mortgages are priced off "swap rates," which track these gilt yields closely. As yields spike, lenders panic, pulling their cheapest deals overnight to reprice them higher. For the 1.6 million homeowners rolling off cheap fixed deals this year, the window of opportunity is slamming shut, replacing hopes of sub-3% rates with a much harsher reality.
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Ben Perks
Managing Director at Orchard Financial Advisers
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 Xmas. But
It’s shows how volatile the UKs 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.
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Samuel Mather-Holgate
Managing Director & IFA at Mather and Murray Financial
With the threat of tariffs with the US coming down the tracks, this inflation data couldn’t be worse news for homeowners and aspiring buyers. If inflation stays high, or goes higher, rates won’t just not come down as quick, but we have a central bank governor who won’t blink at the opportunity to start raising them again. Rachel Reeves should be looking at measures she can put in place to alleviate inflation and possibly change the Bank of England’s mandate to focus on the economy.
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David Stirling
Independent Financial Adviser at Mint Wealth
This news is a kick in the teeth for prospective borrowers looking to secure lower rates in 2026. If inflation stays high, it's much more difficult for the BoE to decide to reduce the base rate. The polycrisis we are facing is further enhanced by Donald's latest tariff tantrum, uncertain swap rates between banks and a continuing malaise in the economy. These all point to mortgage rate changes being precariously balanced for the immediate timebeing.
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Philly Ponniah
Chartered Wealth Manager and Financial Coach at Philly Financial
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.
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Scott Gallacher
Director at Rowley Turton
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.
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Michelle Lawson
Director at Lawson Financial
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.
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David Belle
Founder and Trader at Fink Money
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 ios 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? Who cares. The amount of public sector jobs that have been added that 1) costs the tax payer 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 govt goes to the bond market. Then you have idiots in the Labour Party asking why we're at the mercy of the bond market (they are really not very bright people).
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Colin Low
Managing Director at Kingsfleet
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.
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Rohit Parmar-Mistry
Founder at Pattrn Data
The Bank of England is behaving like a rogue AI running on corrupted, 40-year-old neoliberal source code. It sees a 'glitch', inflation rising to 3.4%, and executes the only command left in its database: 'Inflict Pain to Restore Order.'

This is the classic 'Paperclip Maximiser' problem: an automated system so obsessed with a single metric (2% inflation) that it destroys the environment around it just to hit the target. The neoliberal dogma that you must crush household spending to 'cool' the economy is a dangerous malfunction. 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 BoE will keep blindly pulling the lever, acting like a machine that creates poverty just to balance a spreadsheet.
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Colette Mason
AI Ethics Consultant at Clever Clogs AI
We've spent months pretending the cost crisis was over, when any business owner watching their supplier invoices knew better. This confirmations 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.