Why are UK prices still rising?

• Updated 5 February 2026

Prices in the UK rose by 3.4% in the year to December, up from 3.2% recorded in November.

It means that inflation remains above the Bank of England’s 2% target.

The Bank moves interest rates up and down to try to keep inflation on track. Six cuts since August 2024 have brought rates down to 3.75%.

What is inflation?

Inflation is the increase in the price of something over time.

For example, if a bottle of milk costs £1 but is £1.05 a year later, then annual milk inflation is 5%.

How is the UK’s inflation rate measured?

The prices of hundreds of everyday items, including food and fuel, are tracked by the Office for National Statistics (ONS).

This virtual “basket of goods” is regularly updated to reflect shopping trends, with virtual reality headsets and yoga mats added in 2025, and local newspaper adverts removed.

The ONS monitors price changes over the previous 12 months to calculate inflation.

The main inflation measure is called the Consumer Prices Index (CPI), external, and the latest figure is published every month.

What is happening to UK inflation?

Although the December CPI figure of 3.4% is above the Bank of England’s target, it remains well below the 11.1% figure reached in October 2022.

That was the highest rate for 40 years.

The increase in average prices recorded in December – the first for five months – was slightly more than expected.

However, analysts do not think it marks the start of a longer, upward trend because December’s data included one-off factors such as flight costs over Christmas and an increase in tobacco tax announced in the November Budget.

The Bank of England also considers other measures such as “core inflation” when deciding whether and how to change rates.

This doesn’t include food or energy prices because they tend to be very volatile, so it can be a better indication of longer-term trends.

Core CPI was also 3.4% in the 12 months to December, up slightly from 3.2% in the 12 months to November.

Why are prices still rising?

Although inflation has fallen significantly since the October 2022 high, that doesn’t mean prices are falling — just that they are rising less quickly.

Inflation soared in 2022 because oil and gas were in greater demand after the Covid pandemic, and energy prices surged again when Russia invaded Ukraine.

It then remained well above the 2% target, partly because of higher food prices.

Food price inflation has continued to be an issue.

It rose to 4.5% in the year to December 2025, with the price of bread and cereals partly behind the rise.

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Why does putting up interest rates help to lower inflation?

When inflation was well above its 2% target, the Bank of England increased interest rates to 5.25%, a 16-year high.

The idea is to make borrowing more expensive, meaning people and businesses have less money to spend. People may also be encouraged to save more.

In turn, this reduces demand for goods and slows price rises.

But it is a balancing act – increasing borrowing costs risks harming the economy.

For example, homeowners face higher mortgage repayments, which can outweigh better savings deals.

Businesses also borrow less, making them less likely to create jobs. Some may cut staff and reduce investment.

In recent months, inflation has remained above the Bank’s target at the same time as the economy has remained relatively flat and the jobs market has softened.

Therefore, the Bank has chosen to cut rates, despite high inflation, in an attempt to encourage people to spend more and get businesses to invest and create jobs to boost the economy.

What is happening to UK interest rates and when will they go down again?

The Bank of England began cutting rates in August 2024.

Six cuts since then have brought rates down to 3.75%, the lowest level since early 2023.

The most recent cut in December 2025 reflected concerns over rising unemployment and weak economic growth.

However, it was tight vote, with policymakers voting 5-4 in favour of a cut.

The vote was equally tight in February, when policymakers decided to keep rates at 3.75%.

But after the February announcement, Bank governor Andrew Bailey said he now expected inflation to be close to the Bank’s 2% target from spring onwards. He had previously predicted that it would hit that level in 2027.

“That’s good news,” said Bailey. “We need to make sure that inflation stays there.

“All going well, there should be scope for some further reduction in [the] Bank Rate this year.”

The next interest rate decision is on Thursday 19 March.

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Are wages keeping up with inflation?

The latest official figures, external show that regular pay in the UK grew by more than inflation between September and November.

Average annual growth in pay (excluding bonuses) during the three-month period fell slightly to 4.5%, down from 4.6% recorded between August and October.

After taking inflation into account, it means wages grew by 0.9% between September and November.

Annual average regular earnings growth for the period was 7.9% for the public sector and 3.6% for the private sector.

Meanwhile, separate ONS figures showed, external the estimated number of job vacancies in the UK fell by 2,000 (0.2%) to 729,000 between September and November 2025.

The unemployment rate was 5.1% between September and November, the same as between August and October.

This the highest figure since since January 2021, just below the peak rate seen during the Covid pandemic, which will also factor into the Bank of England’s interest rate decisions.

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What is happening to inflation and interest rates in Europe and the US?

The US and eurozone countries have also been trying to limit price increases,but both have lower central bank interest rates than the UK.

The inflation rate for countries using the euro was 1.9% in December 2025, according to EU data, external — down from 2.1% in the previous month.Preliminary data for January suggests that the rate fell further to 1.7%, external.

Between June 2024 and June 2025, the European Central Bank (ECB) cut its main interest rate from an all-time high of 4% to 2%, where it has remained.

In the US, price increases have eased in recent months. The latest figures show prices rose 2.7% over the 12 months to December, external, down from 3% in September.

In December, the US Federal Reserve cut its target interest rate for the third time in 2025, putting it in a range of 3.50% to 3.75% — its lowest level in three years. It held rates at its January meeting.

Earlier in the year, the Fed had come under attack from US President Donald Trump for not cutting rates.

Trump has picked Kevin Warsh to lead the Fed when current chairman Jerome Powell’s four-year term ends in May.

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