According to data released on January 21, consumer price inflation in the UK in December 2025 increased more strongly than forecast, while service inflation progressed as expected by analysts.
The UK Office of National Statistics said that annual consumer price inflation increased to 3.4%, compared to 3.2% in November 2025. This level is 0.1 percentage points higher than analysts' forecasts at the end of last year.
Meanwhile, service inflation increased to 4.5% in December 2025, from 4.4% last month, as forecast by the market.
Inflation in the UK is currently still the highest in the G7 group, in the context of economic growth being assessed as sluggish.
However, the price increase rate is expected to decrease sharply in the coming months, as the utility cost increases and some price levels controlled by the state last year are no longer included in the year-on-year comparison.
Although inflation is still at 3.4%, Bank of England (BoE) Governor Andrew Bailey still positively assesses that this index is likely to fall rapidly to nearly 2%/year in April or May 2026.
The British pound has hardly had a significant reaction to the above figures.
According to economists, tobacco and airfares are the biggest contributors to the overall increase in the consumer price index in December 2025.
Financial markets are assessing the possibility that BoE will cut interest rates one or two times, 0.25 percentage points each time, in 2026.
Previously, in December 2025, the BoE Monetary Policy Committee lowered the base interest rate to 3.75%, although nearly half of the members voted to keep the interest rate unchanged due to concerns about persistent inflationary pressure.
