The Office for National Statistics said the Consumer Price Index (CPI) measure of inflation had increased from an annual rate of 1.9% in November to 2.9% in December; the largest one month rise since records began. The wider Retail Price Index (RPI), which includes tax, mortgage interest payments, buildings insurance and house depreciation, rose to 2.4%.
Although the Bank of England Governor, Mervyn King, had warned that inflation was: "likely to pick up markedly in the first half of this year", economists and other commentators had expected an increase in CPI to only 2.6% and were taken by surprise by the higher figure.
Mervyn King also warned "the patience of UK households is likely to be sorely tried over the next couple of years. There is little scope for growth in real take-home pay, which may remain weak even as output recovers."
The news about UK inflation increased the value of the pound against the dollar and Euro as the money markets forecast an early end to rock bottom interest rates.
The increase in CPI was almost certainly a result of a number of one-off factors that had depressed prices a year earlier in 2009, including a drastic fall in oil prices, the VAT cut to 15% and heavy retail discounting.
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