Mixed Print, hotter annual increase; December 2025 UK CPI

Headline inflation shocks higher year on year, notwithstanding a monthly drop

At 3.4% year-on-year, December 2025 UK CPI increased from November's 3.2% and beat consensus expectations. From December 2024's level of 135.10 (2015=100 base), the annual index rose 3.26%. Core CPI persisted at 3.2% YoY, with ongoing food price and service pressures counterbalancing some respite elsewhere. The hotter-than-expected annual reading draws attention to persistent underlying inflation resistance.

Cools sharply monthly; misses forecasts

From 139.80 in November to 139.50, CPI decreased 0.2% on a month-over-month basis in December. This was milder than the near-flat 0.0% consensus prediction and mirrors decreasing energy prices as well as normal seasonal influences. A more modest +0.3% core CPI m/m increase indicated that fluctuating components rather than widespread deflationary pressure drove the monthly sluggishness.

Mixed signal helps to support near-term rate-cut predictions.

With markets pricing in a bigger chance of a February 2026 rate cut, the Bank of England maintains a prudent but dovish position by combining a cooler monthly print with stickier yearly inflation. While commodity-linked currencies like AUD showed sensitivity to the energy-related monthly relief, GBP (especially against USD) felt the weight. Traders increasingly focus on expected NIESR GDP flash estimates for additional Q1 directional signals in the forex and commodities market.