Inflation in the UK has ticked higher again, with fresh data showing price rises gathering pace and business leaders warning that the squeeze on households and firms is far from over.
The latest figures from the Office for National Statistics show that the consumer prices index rose to 3.4% in December, up from 3.2% in November. That leaves inflation clearly above the Bank of England’s 2% target and reinforces fears that the final stretch back to that goal will be bumpy rather than smooth.
While headline inflation is well below the double‑digit peaks seen in 2022, the December increase underlines how stubborn underlying price pressures remain, particularly in domestically driven costs such as wages and services. Lower global energy prices have helped ease some pressures, but not enough to offset rising costs across supply chains, from transport and packaging to rents and rates.
For households, the move up to 3.4% means everyday essentials are still climbing faster than pay packets for many, eroding real disposable incomes and forcing continued cutbacks in discretionary spending. The latest data also complicate the outlook for interest rate cuts, with economists now expecting the Bank of England to tread more cautiously for fear of loosening policy too quickly and reigniting inflation.
Industry leaders have described the latest inflation uptick as an “unwelcome” development that leaves trading conditions “challenging” across retail, hospitality and consumer‑facing services. They highlight a combination of higher wage bills, business rates and regulatory costs, arguing there is limited room left to absorb increases without passing them on to customers or scaling back investment and jobs.
Luke Bartholomew, Deputy Chief Economist, at Aberdeen said: “Given the rapid fall in inflation in recent months, a small bounce higher in headline inflation was always likely. And the fact that the bounce was largely driven by highly volatile airline fares means policymakers and the market are likely to look through this noise. Indeed, with the crucial services inflation component a little softer, the big picture is that inflation is on track to return to 2% later this year.
“With yesterday’s jobs data showing that the labour market remains weak, the pieces are still very much in place for further Bank of England easing. However, today’s data probably do now firmly rule out a February cut, with the next rate reduction probably set for March instead.”
Kevin Brown, savings expert at Scottish Friendly, said: “December’s inflation reading shows the road back to the Bank of England’s 2% target is not straightforward. The latest rise underlines that price pressures can quickly re‑emerge around periods like Christmas when demand spikes and discounts unwind. Some of this increase is likely driven by temporary factors, but inflation remains well above target, making another rate cut in February unlikely. For borrowers, mortgage rates should still trend down over the year, but today’s data may slow that progress. For savers, higher inflation again exposes how quickly it erodes the real value of cash, as returns often struggle to keep pace. That is why it remains sensible to look beyond cash for long‑term goals, as investing has historically offered a better chance of protecting purchasing power and growing wealth over time.”
Daniel Austin, CEO and co‑founder at ASK Partners, said: “Inflation rising to 3.4% is a reminder that the journey back to target will not be linear. While the broader disinflation trend remains, it reinforces a ‘higher for longer’ backdrop and explains why households, buyers and developers remain cautious. Mortgage pricing has improved and recent rate cuts are welcome, but it will take time for any meaningful easing in monthly costs to filter through, leaving confidence fragile. In property, mainstream buyer activity is subdued, while capital is gravitating towards structurally resilient, income‑led segments such as build‑to‑rent, co‑living, logistics, self‑storage and data centres. A clearer downward path for inflation would be the real catalyst for unlocking stalled projects; until then, disciplined, income‑focused strategies, particularly real estate debt, look well‑placed to manage downside risk while staying active.”
Ann Frances Cooney, employment expert and partner at DWF, said: “Despite a difficult economic backdrop and major employment law reform, the Scottish labour market continues to show resilience. Between September and November 2025, the employment rate rose and both unemployment and economic inactivity fell, with Scotland’s unemployment rate of 3.7% sitting below the UK rate. Early HMRC estimates show median monthly pay for payrolled employees in Scotland reached £2,580 in December 2025, up 4.2% on a year earlier.
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“At the same time, businesses face mounting financial pressures from inflation and higher Employer National Insurance, alongside growing expectations from employees for pay that keeps up with living costs. In November 2025, an estimated 155,000 working days were lost to labour disputes across the UK, the highest since January 2024. With significant legislative reform under way and trade unions assuming a more prominent role, employers need a clear, strategic approach to union engagement to help avoid industrial unrest. With the Employment Rights Act 2025 now in place and wide‑ranging reforms due from 2026 onwards, many organisations are reinforcing workforce resilience. Early, strategic planning will be vital to manage risk and ensure long‑term success in a rapidly evolving regulatory landscape.”
Official and independent forecasters still expect inflation to move gradually closer to target over the course of 2026, but the December figures show how easily that trajectory can be knocked off course by renewed price pressures. With households cautious and businesses warning of thin margins, the UK enters the new year facing a delicate balancing act between taming inflation, supporting growth and protecting employment.
