UK Inflation Rises to 3.4%: What It Means for Your Business
New figures from the Office for National Statistics show that UK inflation rose to 3.4 per cent in December 2025, up from 3.2 per cent in November. This increase marks the first rise in inflation in several months and reflects higher consumer prices across a range of everyday goods and services.
What Is Driving the Increase?
Several factors have contributed to the uptick in inflation, including:
– Higher prices for travel, particularly airfares, which saw a substantial seasonal increase
– Rising costs of alcohol and tobacco products, partly reflecting duty changes
– Food price inflation, particularly basic items such as bread and cereals
The mix of these upward pressures has pushed the headline rate of consumer price inflation higher, even though some other categories – such as housing costs – have shown more modest increases.
Why Businesses Should Care
Inflation doesn’t just affect consumers at the supermarket checkout or when booking a flight. It also influences the wider economic environment in which businesses operate. For employers and payroll professionals, there are a few practical impacts to consider:
Pay and wage strategy
Ongoing inflation can affect discussions around salary reviews. If inflation consistently outpaces wage increases, employees may feel their real income is being eroded. Many employers use inflation figures as one of several data points when reviewing salary budgets for the year ahead.
Employment costs
Persistent inflation can put pressure on business costs more generally. Employers may face higher prices from suppliers, increased facilities costs, and more frequent requests from staff to revisit remuneration packages.
Interest rate context
The Bank of England’s Monetary Policy Committee monitors inflation closely when setting interest rates. A rise in CPI doesn’t guarantee higher interest rates, but it can influence expectations around monetary policy. Stable or slightly rising inflation could delay any rate reductions, which feeds back into business borrowing costs, investment decisions and cashflow planning.
What This Means for Payroll
From a payroll perspective, inflationary trends can affect several areas:
-Salary benchmarking and adjustments – Employers often review pay structures in the context of inflation to ensure staff feel fairly rewarded.
-Real-terms pay calculations – Understanding how inflation interacts with wage growth helps communicate pay decisions more effectively to employees.
-Payroll planning and forecasting – Employers need to consider inflation when budgeting for annual payroll costs and potential changes to pay scales.
How Pecunia Pro Can Help
It’s a challenging time for many businesses, with cost pressures and changing economic indicators affecting planning and decision-making. At Pecunia Pro, we support employers by ensuring payroll is accurate, compliant and aligned with current economic conditions.
We can help you:
• Understand how inflation trends affect payroll planning
• Review pay review processes and budgeting for salary changes
• Communicate pay decisions clearly and confidently
• Maintain payroll accuracy even as business conditions evolve
If you’d like to discuss how inflation might impact your payroll and reward strategy in 2026, get in touch. We’re here to help you navigate the year ahead with clarity and confidence.