The ONS has released inflation figures: Consumer price inflation, UK - Office for National Statistics
Sarah Coles, head of personal finance, Hargreaves Lansdown: “Like the best kind of seasonal weight gain, the bump in inflation in December is likely to be a short-lived phenomenon, and it’s expected to drop again in January. It means these figures are unlikely to have much impact on the Bank of England’s rate cutting decisions.
In more normal times, the seasonal inflationary blip, would be unlikely to steer the Bank from a rate-cutting path. Likewise, the easing of wage inflation revealed yesterday would typically add fuel to the fire for a cut – alongside sluggish GDP growth. However, these are far from normal times. There’s the risk of interruptions to global supply chains and increased trade tariffs, which could add more inflationary pressure in the coming months. It means the market isn’t expecting a cut until April.
What’s moving prices?
Alcohol and tobacco prices helped push inflation up, but much of that was purely down to timing. Tobacco duty increased at the end of November 2025 – pushing prices up in December, whereas in 2024 it all happened a month earlier. It means that in December, prices were rising faster than they were at the same time a year earlier – which automatically boosts inflation.
Another big mover was transport. Petrol and diesel price rises had very little impact at all. Instead, it was air fares flying high. This owes a lot to timing differences, particularly the fact that this time in 2024 the flight prices being measured were Christmas Eve and New Year’s Eve – whereas in 2025 it was 23 and 30 December. Prices are naturally lower on celebration days, and higher as people flock to get away in time for Christmas.
Food prices tend to rise in the run-up to Christmas as the supermarkets cash in on the golden quarter for sales, so there’s nothing unusual in the rise in December, when food inflation rebounded to 4.5%. Striking annual rises included beef and veal, whole milk and butter. Cattle farmers are still feeling the financial impacts of a poor grass harvest – as well as increased labour costs throughout the production and sales process. Poor harvests further afield mean higher prices for chocolate and sweets too. This will have meant shoppers pocketed less change after filling festive stockings with sweet treats.
What it means for retirees
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown: “Inflation has ticked up slightly this month - it’s still way below the double-digit levels we had in the recent past, but the reality is we are dealing with far higher costs. It’s a huge issue for pensioners who need to make sure their pension lasts throughout their retirement.
If you opt for drawdown you need to make sure the income you take is sustainable over the long term. If you are looking for a guaranteed income through an annuity you need to carefully consider what option is right for you before taking the plunge as once bought an annuity cannot be unwound. A level annuity will give you a level of guaranteed income for life, but the issue is that that income stays static and even though it might be enough for you now, there’s no telling whether it will be enough further down the line. You can get an inflation linked product, but the challenge is that the starting income is lower and it will take several years to catch up to that of the level product. There’s a lot to consider.
However, you don’t have to go all in on either income drawdown or annuities -you could consider a combination of both. You could annuitise in stages throughout retirement depending on your needs while leaving the rest invested in income drawdown where it can continue to grow.”
What it means for savings
Mark Hicks, head of Active Savings, Hargreaves Lansdown: “There has been a lot of water under the bridge since these figures were collected in December. Global political news has been unsettling, and I expect that will affect base rate forecasts in the short term.
The market isn’t expecting rate rises until April, which should open a window of opportunity for those who want to take advantage, and lock in a great fixed deal, before the Bank starts to cut rates. Many fixed-term savings products continue to offer returns of over 4%, providing an opportunity to secure above-inflation and above-base-rate returns while they last.”
What it means for mortgages
Sarah Coles: “Mortgage lenders have their own priorities, which is driving the market. This is a key time of year to snap up market share, as the New Year brings buyers back to the market. It means we have seen them competing impressively for business - regardless of what’s happening elsewhere in the world. This isn’t guaranteed to last though, so anyone in the market for a mortgage might want to get their skates on.
The bigger your mortgage, the more impact this will have. Somewhere like Kensington and Chelsea, where the HL Savings and Resilience Barometer shows the average outstanding mortgage is the highest in Britain – at £242,919 – this is going to have a far bigger impact than in Flintshire, where they average is the lowest in the country at £68,601.”
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