Inflation jumped for the first time in six months in the wake of fresh tax rises announced by Rachel Reeves.

The consumer prices index (CPI) rose from 3.2pc in November to 3.4pc in December, according to the Office for National Statistics (ONS).

Analysts had forecast a rise to 3.3pc.

ONS chief economist Grant Fitzner said: “Inflation ticked up a little in December, driven partly by higher tobacco prices, following recently introduced excise duty increases.”

Businesses have warned they have been forced to pass on rising costs to consumers in the wake of the Chancellor’s tax rises.

She raised the employer National Insurance contributions and the minimum wage last April and the minimum wage will rise again from April by 4.1pc to £12.71 per hour.

Many companies have also complained about rising business rates, with around 520 pubs closing for good in the 18 months since Labour came to power.

The Chancellor put up taxes by £40bn in her first Budget and by another £30bn in her second major fiscal event in November.

Sir Mel Stride, the shadow chancellor, said: “Labour’s economic mismanagement is driving up inflation, squeezing living standards, and hurting the most vulnerable.”

Ms Reeves said her “number one focus is to cut the cost of living”.

She said: “At the budget I announced £150 off energy bills, a freeze to rail fares for the first time in 30 years, a freeze to prescription charges for the second year running, and an increase to the national minimum and living wage.

“Money off bills and into the pockets of working people is my choice. There’s more to do, but this is the year that Britain turns a corner.”

10:07am

Thanks for following our coverage of the latest inflation figures for Britain.

We will have the latest on what’s happening in markets in our live blog covering events over in Davos.

09:40am

The latest jump in CPI “does not derail” the overall trend of falling inflation, an economist has said.

Andrew Wishart, an economist at Berenberg, admitted that a February interest rate cut by the Bank of England was “out of the question” but said he thinks borrowing costs could be lowered at the following meeting in March.

He said: “With wage growth decelerating swiftly and productivity increasing there will be far less severe cost push inflation in 2026 than companies experienced in 2025.

“We still expect CPI inflation to drop to 2pc by the summer, with most of the decrease coming in April as large administered price increases in April 2025 are not repeated and the government’s household energy bill subsidy kicks in.

“Until then CPI inflation will hover close to 3pc.”

09:14am

Yael Selfin, chief economist at KPMG UK, said the “outlook remains positive” despite the latest jump in inflation.

She said: “Today’s data likely closes the door on a February interest rate cut by the Bank of England but rate cuts later in the year are still expected.

“Despite services inflation increasing in December, this was not reflective of domestically generated price pressures and was largely driven by volatile categories, such as airfares.

“The MPC will likely look through it, particularly with wage growth continuing to slow, which should see services inflation ease over the coming months.”

She added that she expects inflation “to return to the Bank of England’s target in the spring”.

08:54am

The pound ‍was little changed even after UK inflation picked up ⁠more than expected in December.

Traders are increasing bets that policymakers will lower borrowing costs later this year despite the latest rise in inflation from 3.2pc to 3.4pc.

Underlying inflation held firm and economists at Deutsche Bank predicted Britain will enjoy the biggest fall in CPI in the G7 this year.

Traders are betting there is nearly a 90pc chance that policymakers will lower borrowing costs in April, with an 83pc chance of another cut by the end of this year.

Sterling was flat against the dollar at $1.344 and was steady against the euro at €1.148.

08:19am

Thomas Pugh, chief economist at RSM UK, said the latest rise in inflation was a “temporary” bounce, with “big falls ahead”.

He said: “Inflation should take a step down to 3oc in January, before dropping to around 2pc in the second quarter as positive base effects feed in and policy measures announced in the last budget to lower energy prices take effect.

“However, given almost all the survey measures of prices suggest disinflation has slowed, the Bank of England will be cautious this year, even as headline inflation drops. That means the cut we expect in April may well be the last one this year.”

08:05am

The FTSE 100 inched lower at the start of trading as inflation rose for the first time in six months in Britain.

The UK’s flagship stock index and the mid-cap FTSE 250 both declined by just under 0.1pc to 10,123.20 and 22,942.83, respectively.

07:56am

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The UK will see the biggest fall in inflation of any G7 country in 2026, Deutsche Bank predicts, despite prices rising in December.

Chief UK economist Sanjay Raja said that the latest inflation imprint suggests there is light at the end of the tunnel, even as inflation rose by more than expected.

Mr Raja said: “The fly in the ointment was slightly stronger food and energy prices. This, we think, will fade over time as retail prices catch down to slowing momentum in wholesale prices.

“Looking ahead, the path is clear. Inflation will take a big step down in January, pushing to near 3pc year on year. And by spring, we expect the Bank of England’s 2pc inflation target to be in sight.

“In fact, we think the UK will see the biggest fall in headline inflation of any G7 country this year – moving from 3.4pc in 2025 to 2.3pc in 2026.”

07:49am

The Bank of England will remain “cautious” as Britain’s underlying inflation “remains sticky”, economists have warned after the latest jump in consumer price rises.

Pantheon Macroeconomics said the latest acceleration in inflation “looks mostly genuine rather than noise”, predicting that it would end the year at 2.8pc.

Chief UK economist Rob Wood said: “Headline inflation will drop in the coming months, but underlying pressure remains sticky in our view.”

He added: “Looking ahead, we expect CPI inflation to slow in January but remain at or above 3pc until a sharp drop in April, when the Chancellor’s utility bill cut kicks in.

“We think inflation will reach a low of 2.1pc in July before rising in the second half of the year, as administered price hikes once again add to inflation.

“A new vape tax, matching tobacco duty hike and the tobacco duty escalator should add about 0.2pp to inflation between September and November.

“Petrol duty hikes will also kick-in from September, oil price base effects boost inflation and university tuition fees will be indexed to inflation. All told, with underlying pressure slowing only gradually, we expect headline inflation to end the year at 2.8pc.”

07:35am

Sir Mel Stride, the shadow chancellor, said: “Labour’s economic mismanagement is driving up inflation, squeezing living standards, and hurting the most vulnerable. 

“A record tax burden, reckless borrowing and constant U-turns show a government without a plan. 

“Only the Conservatives offer serious leadership and a clear strategy to stabilise the finances and grow the economy.”

07:33am

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Inflation grew by more than expected in the year to December, in a blow to Rachel Reeves.

Figures from the Office for National Statistics show it edged up to 3.4pc from 3.2pc the previous month, fuelled by tobacco duty, airfares and food prices.

The jump is pulling the UK’s inflation rate further above rivals, with countries like Germany and France experiencing much lower average price rises at 2pc and 0.7pc.

The latest rise in inflation muddies the waters for policymakers at the Bank of England, considering whether to cut interest rates further from 3.75pc.

It comes after surprisingly strong growth in November weighing against a rate cut, while new data shows the job market is stabilising but showing big cracks.

Traders are betting borrowers must wait until April for the next rate cut.

However, families will be feeling hard-pressed with prices rising, while the job market is sluggish and redundancies elevated.

Suren Thiru from ICAEW said: “Though rising services inflation is a warning sign that underlying price pressures remain stubbornly sticky, the intensifying downward pressure from weaker wage growth and rising unemployment should help put it on a more consistent downward path.”

07:30am

In more reassuring news for the Chancellor, underlying levels of inflation held firm during December.

So-called core inflation, which strips out volatile food and energy prices, was unchanged at 3.2pc last month. Analysts had expected it to rise to 3.3pc.

Services inflation, which is closely watched by the Bank of England when setting interest rates, rose from 4.4pc to 4.5pc but this was less than the jump to 4.6pc that had been expected by analysts.

07:19am

Chancellor Rachel Reeves, said her “number one focus is to cut the cost of living” after the latest jump in inflation.

She said: “At the budget I announced £150 off energy bills, a freeze to rail fares for the first time in 30 years, a freeze to prescription charges for the second year running, and an increase to the national minimum and living wage.

“Money off bills and into the pockets of working people is my choice. There’s more to do, but this is the year that Britain turns a corner.”

07:15am

Higher tobacco prices were the main driver of higher inflation as fresh increases in excise duty came into force.

ONS chief economist Grant Fitzner said: “Inflation ticked up a little in December, driven partly by higher tobacco prices, following recently introduced-excise duty increases.

“Airfares also contributed to the increase with prices rising more than a year ago, likely because of the timing of return flights over the Christmas and New Year period.

“Rising food costs, particularly for bread and cereals, were also an upward driver.

“These were partially offset by a fall in rents inflation and lower prices for a range of recreational and cultural purchases.

“The annual increase in the prices for goods leaving factories was unchanged this month while the increase in the cost of raw materials for business slowed, driven by lower crude oil prices.”

The Consumer Prices Index (CPI) rose by 3.4% in the 12 months to December 2025, up from 3.2% in November 2025.

Read the article ➡️ https://t.co/o55MFJEG2L pic.twitter.com/JpTVNSpkRT

— Office for National Statistics (ONS) (@ONS) January 21, 2026

07:06am

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Asian stocks extended their losing streak amid US threats to acquire Greenland ahead of Donald Trump’s speech in Davos.

Markets were gripped by the so-called “Sell America” trade that emerged after last year’s “liberation day” tariff announcements in April.

Wall Street tumbled over 2pc overnight and the US dollar suffered its biggest fall in over a month.

That sent investors fleeing to the safety of gold, which surged 2.1pc to a new record of $4,865 an ounce.

All eyes are now on the World Economic Forum in Davos where president Trump is due to deliver a ‍keenly awaited speech later in the global day, which could calm or inflame tensions with Europe.

The MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5pc. Japan’s Nikkei skidded 0.5pc, down for the fifth straight day.

Chinese shares outperformed the region, with the blue-chip index gaining 0.5pc.

However, the global bond market was still reeling from a brutal sell-off, having been caught up in a perfect storm of worries over exposure to US assets and a surge in Japanese government borrowing costs.

Fears over increased government spending under Japanese prime minister Sanae Takaichi sent bond yields ⁠there skyrocketing ‌to record highs, drawing criticism from ‍the opposition.

On Wednesday, Japan government bonds rallied as buyers returned with prices at suppressed levels. The 40-year Japanese government bond yields fell 11 basis points to 4.1pc, having surged 26 basis points a day earlier.

U.S. Treasury yields also retreated. ​The benchmark 10-year yield slipped two basis points to ‍4.28pc, after jumping seven basis points overnight to a five-month high of 4.31pc.

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