New figures show that a record monthly jump in prices pushed inflation to an eight-month high in
December.
The report from the Office for National Statistics showed that the inflation rate rose from 3.3 per
cent in November, to 3.7 per cent in December. The increase was higher than analysts’ forecasts,
which indicated inflation would remain steady over the period.
Through the whole of 2010, inflation was at least one percentage point higher than the Bank of
England’s 2 per cent target. It looks set to climb higher in January too, with most experts predicting
the figure will peak at over 4 per cent within the next month or two.
Opinions are divided on how the Bank of England should deal with the current surge in inflation. The
Bank’s current position is that the inflationary spike (partly driven by the VAT increase) will resolve
itself by next year and that there would be no immediate benefit in raising their base rate.
However, the figures from the Office for National Statistics show that the largest drivers of inflation
in December were food and utility bills, fuel and air transport – and an increasing number of
economists are suggesting that the Bank should look to raise their rates.
George Buckley at Deutsche Bank said, “The numbers are obviously a lot worse than expected. I
think it does raise the risk that the Bank of England will have to move interest rates in the first half of
this year.”
