UK inflation was 'higher than expected' in December 2025, which could cause complications for borrowing, the housing market, and more.

The consumer price index - a 'shopping basket' of goods representing typical household goods and services - rose to 3.4 percent in the year leading up to December 2025.

It's 'well ahead' of the government's inflation target of two percent, the Independent Financial Advisors Magazine has said.

In practice, this means that the Bank of England's Monetary Policy Committee is less likely to cut interest rates when it meets this month.

This will have a knock-on effect in the mortgage and housing market, and for borrowing.

Fortunately, though, Stockport's resident financial experts at Beech Tree Financial Advice Ltd are here to demystify what the uptick in inflation means for you.

Opening thoughts 

While inflation at 3.4% is higher than many were expecting, it's important not to panic. Inflation moving above target doesn't automatically mean financial trouble, but it does mean households need to be more deliberate with their planning, particularly around borrowing and long-term commitments.

Interest rates & mortgages

With inflation still well above the Bank of England's 2% target, interest rate cuts are now far less likely in the short term. For homeowners and buyers, this means mortgage rates may stay higher for longer, and affordability will continue to be a key consideration.

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Borrowing & debt

Higher-than-expected inflation makes borrowing decisions more nuanced. Anyone considering taking on new debt should be stress-testing their finances against the possibility that interest rates remain elevated well into 2026.

Savers & investors

Inflation at this level is a reminder that cash left sitting idle can lose real value over time. Savers and investors should be reviewing whether their money is still working as hard as it could be, while ensuring any strategy remains aligned with their risk tolerance and time horizon.

Closing thoughts

Periods of higher inflation are exactly when good financial planning adds the most value. Reviewing budgets, understanding where interest rate exposure sits, and having a clear long-term plan can make a significant difference to financial resilience."

Inflation may grab the headlines, but with the right advice and a clear plan, households can still make confident financial decisions even in a more uncertain economic environment.

If you'd like to schedule a free initial consultation, our Stockport partners, Beech Tree Financial Advice, would be very happy to sit down and talk this through with you. Please contact us at beechtreefinancial.co.uk or visit our office in Heaton Chapel at 334 Wellington Road North, SK4 5DA.

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