Inflation in the UK rose for the first time in five months over the Christmas period, driven by higher cigarette prices following a tax hike announced by the chancellor and a sharp rise in airfares, according to official figures.
Data published on Wednesday by the Office for National Statistics showed that consumer inflation rose to 3.4 percent in December, up from 3.2 percent in November and above economists’ expectations. It marked the first increase in inflation since July last year and kept price growth above the Bank of England’s 2 percent target.
When workers start working in July 2024, inflation stood at 2.2 percent.
The ONS said the increase was mainly due to rising cigarette prices, as well as higher airfares and rising food costs. Within her October 2024 and November 2025 budgets, the chancellor, Rachel Reeves, increased duties on cigarettes and other tobacco products and introduced a new tax on vapes.
Inflation for alcohol and tobacco rose to 5.2 percent in December, from 4 percent the previous month, while airfares jumped 28.6 percent year-on-year. Food inflation also rose sharply, rising to 4.5 percent from 4.2 percent, with bread and cereals among the biggest contributors.
Paul Dales, chief UK economist at Capital Economics, said the timing of the Budget played a big role in the data. “The later-than-usual budget of November 26 means that the increase in tobacco duties is included in the December ONS survey,” he said.
Grant Fitzner, chief economist at the ONS, said inflation had “picked up slightly” in December, partly due to the rise in tobacco tax. He also added that the cost of air fares has increased more than last year, “probably because of the return time of flights during Christmas and New Year”.
Other price pressures were offset by weaker leisure and culture inflation, putting downward pressure on the overall index.
The rise in inflation comes days after the ONS reported that unemployment remained at 5.1 per cent, a near five-year low, although economic output expanded by a faster-than-expected 0.3 per cent in November.
In response to this data, Reeves said that “the government’s first objective is to reduce the cost of living”, adding that “this is the year Britain turns around”. He was speaking in Davos, Switzerland, where he attended the annual World Economic Forum.
Bank of England economists believe the rise in inflation will be short-lived, with price growth expected to fall below the 2 percent target in the spring as household energy bills fall. Financial markets are pricing in two interest rate cuts this year, which will take the Bank rate to 3.25 percent from 3.75 percent, following four cuts by 2025.
Nicolas Crittenden, an economist at the National Institute of Economic and Social Research, said this growth does not indicate continued inflationary pressure. “Cigarette tax increases and airlines raising prices for holidaymakers are the main drivers of this small increase and do not reflect permanent price increases across the economy,” he said.
Services inflation, a closely watched measure of domestically produced price pressures, rose to 4.5 percent in December from 4.4 percent in the previous month. Core inflation, which excludes food and energy prices, was unchanged at 3.2 percent.
