Consumption based inflation in the United Kingdom shot up to 3.4% as of December 2025, up from 3.2% last month. This figure is still well above the Bank of England’s target of 2% which has led to increasing alarm amongst economists and policymakers. This inflationary trend points to a longer-standing economic crisis that began during the Covid pandemic and was made worse by global tensions stemming from the Russia-Ukraine War.
In December 2025, the UK’s Consumer Prices Index (CPI) reached record inflation of 3.4%. This increase further highlights the increasing pressure on household budgets. Core CPI, which excludes the more volatile food and energy categories, saw a large jump of 3.4%. This increase is up from 3.2% in November. This increase is a signal of widespread upward pressure on prices in nearly all sectors of the economy.
As we know now, inflation in the UK had a notable peak in October 2022, hitting an astounding 11.1%. Additionally, this set the stage for what would become the inflation rate seen in four decades. The resulting oil and gas economic boom has driven the recent recovery of our economy from the depths of Covid. Russia’s invasion of Ukraine added to the mix. This conflict increased energy prices and worsened inflationary pressures.
What we see with inflation rates in other parts of the country could not be more different. In December, countries sharing the euro dollar reported an inflation rate of only 1.9%. This data is based on the EU’s open data. This difference begs the question of what is driving the cause of the UK’s unusually high inflation.
In light of increasing inflationary pressures, the Bank of England has shifted towards a more hawkish stance. The U.S. central bank raised the federal funds rate target range to 5.25%, a 16-year peak. This decision is intended to prevent the continuation of frequent price rises that have been above its 2% goal. The next interest rate call is due on Thursday, 5th February. Thanks to inefficiencies, as a myriad of market analysts are all too willing to tell you.
The situation in the United States reflects broader trends, as the US Federal Reserve cut its target interest rate for the third time in 2025. That new range—3.50% to 3.75%—represents a big change of priorities, as the economy opens up new possibilities.
The European Central Bank (ECB) clearly went on the offensive. It cut its key lending rate from an historic peak of 4% to 2%. Such a move would have profound implications for currency valuations, and by extension, trade dynamics all over Europe including the UK.
Alongside this worsening inflation, wage growth has started to trend downward. In the three-month period ending in November, annual pay growth on average, not including bonuses, fell to 4.5%. This is a 4.5% decline from the 4.6% reported earlier this year. Wage growth continues to stagnate, despite the unemployment rate holding firm at 5.1%. This continuing trend implies that the labor market is beginning to soften, despite the persistence of inflation.
The Office for National Statistics (ONS) continues to track the prices of hundreds of everyday items, including food and fuel, providing valuable insights into consumer spending patterns and economic health. With prices on the rise across the board, consumers are feeling more financial pressure than ever, and continuing to do so could force drastic changes in consumer spending.