| Consensus | Consensus Range | Actual | Previous | |
| Month over Month | 0.3% | 0.2% to 0.4% | 0.4% | -0.2% |
| Year over Year | 3.3% | 3.1% to 3.4% | 3.4% | 3.2% |
| Core CPI - M/M | 0.3% | -0.2% | ||
| Core CPI - Y/Y | 3.2% | 3.2% |
Highlights
Inflationary pressures rose slightly at the end of 2025, with headline inflation rising to 3.4 percent in December from 3.2 percent in November. The monthly increase of 0.4 percent, higher than the 0.3 percent recorded a year earlier, suggests renewed price momentum as the year closed. The main drivers were alcohol and tobacco, alongside transport costs, indicating that discretionary spending and mobility-related expenses remain sensitive to cost shocks.
Underlying inflation showed greater stability. Core CPI was unchanged at 3.2 percent, implying that the uptick in headline inflation was not broad-based. However, a divergence within components persisted as goods inflation edged up marginally to 2.2 percent, while services inflation accelerated further to 4.5 percent, reinforcing concerns that domestic cost pressures, particularly wages and service-sector demand, remain elevated.
A similar pattern emerged in CPIH, which increased to 3.6 percent annually. Housing-related costs continue to exert upward pressure, even as core CPIH remained steady at 3.5 percent. Overall, the data point to inflation driven by services inflation and housing costs, likely to constrain the pace of monetary policy loosening in the near term. These updates leaves the RPI at 12 and takes the RPI-P to 26, meaning that economic activities continue to outperform expectations in the UK economy.
Market Consensus Before Announcement
UK annual inflation seen at 3.3 percent in December after 3.2 percent in November. Month on month, the consensus looks for an increase of 0.3 percent after a 0.2 percent decrease in November.
Definition
The consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK. It is calculated using the same methodology developed by Eurostat, the European Union's statistical agency, for its harmonised index of consumer prices (HICP). The CPI is the Bank of England's target inflation measure.
Description
The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as the UK, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer. Inflation is an increase in the overall price level of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
For monetary policy, the Bank of England generally follows the annual change in the consumer price index which is calculated using the European Union's Eurostat methodology so that inflation can be compared across EU member states.