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UK inflation rate rises to 3.7% in December UK CPI inflation rate rises to 3.7% in December
(40 minutes later)
The UK Consumer Prices Index (CPI) annual inflation rate rose to 3.7% in December, up from 3.3% in November. UK inflation jumped in December with the Consumer Prices Index (CPI) rising to 3.7%, up from 3.3% in November.
Retail Prices Index (RPI) inflation - which includes mortgage interest payments - rose to 4.8% from 4.7%.Retail Prices Index (RPI) inflation - which includes mortgage interest payments - rose to 4.8% from 4.7%.
The rise will put further pressure on the Bank of England to lift interest rates to curb rising inflation.The rise will put further pressure on the Bank of England to lift interest rates to curb rising inflation.
The recent VAT rise from 17.5% to 20% could further fuel inflation, which has now remained above the 2% target by one percentage point or more for 13 months.The recent VAT rise from 17.5% to 20% could further fuel inflation, which has now remained above the 2% target by one percentage point or more for 13 months.
The Bank of England's governor, Mervyn King, had to write four letters to the chancellor last year as a result. 'Hike this year'
Steve Bell, chief economist at the GLC asset management firm, said the inflation rise meant the chances of an interest rate rise had "increased substantially".
The Office for National Statistics said the biggest drivers of inflation were air transport, fuel, utility bills and food costs.
Fuel prices increased at their fastest annual rate since July, while the cost of food showed its biggest annual rise since May 2009.
This inflation rise has come as quite a shock.
The jump in the annual rate from 3.3% to 3.7% has come even before the VAT increase took effect.
The pressure on consumer prices from surging international commodity costs is all too clear.
Transport, including air fares and fuel for motorists, rose by the largest monthly amount on record.
Food prices saw the largest ever increase for the month of December.
This is a real headache for the Bank of England as it debates whether to raise interest rates or to stick with its belief that the impact of volatile commodity prices will fall away next year.
"The question is whether the peak is 4.1, or is it higher?" said Alan Clarke, economist at BNP Paribas.
He added: "It confirms my suspicion that the first rate hike will come this year; the only question is how soon.
"Our call is August, but clearly there is a risk it comes as soon as May."
The Bank of England's governor, Mervyn King, had to write four letters to the chancellor last year as a result of rising inflation.
But with the new government having announced the biggest round of budget cuts since World War II, the Bank still expects the resulting slowdown in spending to bring inflation down over the next two years.But with the new government having announced the biggest round of budget cuts since World War II, the Bank still expects the resulting slowdown in spending to bring inflation down over the next two years.
The latest increase was more than economists had expected and above the Bank of England's own forecasts.
And core inflation, which strips out volatile items such as energy and food prices, rose from 1.9% to 2.9%.