UK inflation surges to 8-month high in December

| January 18, 2011 | 0 Comments

The Office for National Statistics (ONS) has today announced Consumer Price Inflation (CPI) rose to an annual rate of 3.7% in December, up from 3.3% in November.

The figure was much higher than the 3.4% analysts had expected and inflation has now been above its target of 2% for over a year.

Many leading business groups have suggested that inflation could reach 4% - because of the recent VAT hike.

The central bank does, however, believe inflation will fall below its target by early 2012.

On a monthly basis, inflation rose 1% in December - much higher than November‘s 0.4% rate and the largest increase since the series began in 1996.

According to the ONS, the rise was attributed to higher fuel, utility and food bills. Fuel cost grew at their fastest annual rate since last July, while food prices saw the biggest annual rise since May 2009.

Last week, the Bank of England opted to keep interest rates at the record low of 0.5% - where they have been since March 2009.

The CPI inflation rate is a benchmark for the MPC and for seven months now, policymaker Andrew Sentance has voted for interest rates to be lifted from their current low to bring inflation down.

Mr Sentance has previously warned that the Bank faces losing its credibility if it is not seen to be fighting inflation.

As a result, today’s figures will undoubtedly put further pressure on the central bank to lift interest rates to curb rising inflation.

Meanwhile, Retail Price Inflation (RPI), which includes mortgage costs and is used as the basis for many wage deals, rose to 4.8% in December - up from November’s 4.7% - however, this was in line with expectations.

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