U.K. Inflation Rate Jumps Most on Record

The U.K. inflation rate jumped in December by the most since records began in 1997, posing a challenge to policy makers as they consider when to start raising interest rates
TradingEconomics.com, Bloomberg 1/19/2010 10:00:17 AM

Consumer prices climbed 2.9 percent from a year earlier, 1 percentage point more than in November, the Office for National Statistics said. The rate rose after oil prices jumped and 2008 cuts in sales tax and retail prices weren’t repeated. The 1- point jump in the rate was the biggest since comparable records began 13 years ago. On the month, prices rose 0.6 percent.

This is the first time since May that inflation has exceeded the Bank of England’s 2 percent target, and economists say it may accelerate further in January. While officials argue that the rate will drop again this year, the figures put pressure on them to consider tightening policy as Britain recovers from the recession and braces for an election by June.

Core inflation, which excludes costs of energy, food, alcohol and tobacco, accelerated to 2.8 percent in December, the fastest pace on record, the statistics office said.

The Bank of England forecasts inflation to accelerate before dipping below the 2 percent goal. The rate won’t return to the target until 2012, its predictions show. Policy makers will release new forecasts in February.

The weakness of sterling may has also have spurred inflation pressures. The pound has dropped by about a quarter in the past two years against a trade-weighted basket of currencies, raising the cost of imports for manufacturers.

U.K. Inflation Rate Jumps Most on Record