Just when it looked like the UK economy was starting to show signs of recovery, a surprise increase in inflation has sparked concern.

The rate of inflation in December 2025 rose slightly to 3.4 per cent – the first increase in five months.

With the Government still aiming for a two per cent inflation rate, it is worth understanding whether the increase is just a blip or a sign of something more troubling.

Why did inflation increase?

Inflation rates are determined by the rising and falling of prices across various divisions.

It is possible that while some prices may have come down in December 2025, enough divisions saw an increase to drive up the overall rate of inflation.

Alcohol and tobacco are being chiefly blamed for the rise in inflation as the prices rose by 5.2 per cent, up from four per cent in November 2025.

The other big culprit was the transport division, where prices rose by four per cent compared to the 3.7 per cent in November 2025.

Ultimately, this led to inflation hitting 3.4 per cent, up from 3.2 per cent the previous month.

The last rise in inflation was in July 2025, when the rate increased from 4.1 per cent to 4.2 per cent.

Is the rise in inflation a big problem?

While rising inflation is not a great sign, it is not time to ring alarm bells just yet.

In a perfect world, inflation would steadily fall until the two per cent target was met.

However, the management of inflation rates is seldom a linear journey and the overall trends need to be observed before conclusions can be drawn on the state of the economy.

Caution is advised during this time and the real story will continue to emerge as the rate of interest is recorded throughout the start of 2026.

If you are concerned about how interest rates may impact you, our expert team can help you to understand and monitor the situation.

As it stands, the markets seem confident that interest rates will be cut this year, but only time will tell when or if that will happen.

To gain a better understanding of how interest rates affect your debts, savings and investments, speak to our team today.