Inflation in the United Kingdom has risen to 3.4% in December 2025, marking the first increase in six months and leading financial experts to declare the Bank of England's long-standing 2% target as a 'pipe dream'. The latest data from the Office for National Statistics reveals a concerning uptick in the Consumer Prices Index (CPI), which climbed from 3.2% in November to 3.4% over the twelve months to December.
Monthly and Annual Inflation Figures Show Persistent Pressure
On a monthly basis, CPI experienced a 0.4% rise in December 2025, compared to a more modest increase of 0.3% during the same period in 2024. This monthly change was primarily driven by significant upward contributions from the alcohol and tobacco sector, alongside transport costs, which collectively pushed both the CPIH and CPI annual rates higher.
Core Inflation and Sector-Specific Trends
Core CPI, which excludes volatile components such as energy, food, alcohol, and tobacco, remained steady at 3.2% for the twelve months leading to December 2025, unchanged from the previous month. However, a closer look at the goods and services sectors reveals underlying pressures:
- The annual rate for CPI goods increased slightly from 2.1% to 2.2%.
- More notably, the CPI services annual rate rose from 4.4% to 4.5%, indicating persistent inflationary forces in everyday services.
Expert Analysis: A 'Pipe Dream' Target and Economic Volatility
Ben Perks, Managing Director at Stourbridge-based Orchard Financial Advisers, commented to Newspage that achieving the Bank of England's 2% inflation target now appears unrealistic. 'We’re more likely to see a David and Brooklyn public embrace than a 2% inflation figure,' he remarked, highlighting the perceived improbability of reaching this goal.
Perks attributed the recent increase to anticipated factors like changes in tobacco tax and holiday travel over the Christmas period. However, he emphasised that this volatility underscores the UK's ongoing struggle with inflation 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,' he added, pointing to the broader implications for mortgage holders and consumers.
Sticky Inflation and Future Outlook for 2026
Philly Ponniah, a Chartered Wealth Manager and Financial Coach at Philly Financial, expressed little surprise at the figures but noted their sobering implications. 'This rise to 3.4% is not a shock, but it is a sober reminder that inflation is proving sticky rather than solved,' she stated.
Ponniah explained that core inflation holding at 3.2% suggests lingering pressures in everyday services, which are neither flaring up dramatically nor dissipating. Looking ahead to 2026, she predicts a gradual easing of inflation, albeit with potential bumps along the way rather than a smooth return to 2%. 'Wage growth and services costs stay elevated,' she noted, indicating that these factors will continue to influence the economic landscape.
Implications for Interest Rates and Borrowers
The persistent inflation figures have significant consequences for monetary policy and personal finance. Ponniah warned that quick interest rate cuts by the Bank of England are now unlikely, as policymakers will seek clearer evidence that inflation is under control. 'Mortgage rates may drift down but borrowers should not expect a return to ultra-cheap deals,' she advised, suggesting that households should prepare for a prolonged period of higher borrowing costs compared to previous years.
This latest inflation report highlights the ongoing challenges in the UK economy, with experts urging a reassessment of targets and cautioning against expectations of rapid improvement. As the nation navigates these economic headwinds, the focus remains on managing costs and anticipating further developments in the months ahead.
