CPI inflation rises to 3.4%

CPI inflation rises to 3.4%

21 Jan 2026

Adam Gillespie, Partner, XPS Group, commented: "UK CPI inflation for the 12 months to December has increased to 3.4%, reversing the direction of travel after two months of falls. While an inflation uptick was widely expected, today’s increase will be unwelcome news for households and businesses, and a setback for the Government’s disinflation ambitions.  

December data can be volatile, but this release is a stark reminder of just how much work remains to bring inflation towards the Bank of England's 2% target.

Against a backdrop of tariff tensions and geopolitical uncertainty, the risk of renewed global inflation is rising, limiting the scope for rate cuts from central banks, including the Bank of England. These external pressures add to the UK's existing inflation challenges.

For DB pension schemes, gilt yields remain far more important than the headline CPI figure. Gilt markets continue to be volatile, with Q4 seeing material falls in long-dated yields, while ongoing gilt curve fragmentation is amplifying hedging mismatches. This environment reinforces the need for robust LDI strategies that can adapt to changing market conditions."