UK inflation climbed to 3.4% in the year to December, according to official figures, marking the first increase in five months. The unexpected rise, exceeding economists' predictions of a 3.3% uptick, was attributed to temporary factors such as higher tobacco prices and increased airfares during the Christmas period.

The jump in inflation arrives just before the Bank of England's Monetary Policy Committee convenes on February 5 to deliberate on interest rates. The committee had previously lowered borrowing costs to 3.75% at the end of 2025.

Michael Saunders, a former rate-setter at the Bank of England, downplayed concerns that the inflation increase signaled a sustained upward trend. "It is not the start of a new upward trend, it reflects a variety of fairly temporary erratic factors," Saunders stated. He anticipates the Bank will refrain from cutting borrowing costs in February but foresees "gradual" reductions later in the year.

The rise in tobacco prices stemmed from tax increases announced in the Budget, while airfare hikes reflected the typical surge in demand during the holiday season. These one-off events contributed significantly to the overall inflation rate for December.

The Bank of England's upcoming meeting will be closely watched by financial markets and consumers alike, as the committee weighs the latest inflation data against broader economic conditions. The decision on interest rates will have implications for borrowing costs, savings rates, and overall economic growth.