Why are UK prices still rising?

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%.

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).

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

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, which was the highest rate for 40 years.

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.

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

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 that if you make borrowing more expensive, 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.

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

The Bank said rates were "likely to continue on a gradual downward path" in 2026, but warned decisions on future cuts were likely to be even closer.

The next interest rate decision is on Thursday 5 February.

Are wages keeping up with inflation?

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

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.

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.