CPI Inflation surges to an eight month high

London - 18 January 2011

- CPI hits 3.7%
- Figure pre-dates January’s VAT hike

Inflation surged to an eight month high of 3.7% in December, well above the Bank of England’s forecasts and up from 3.3% in November.

The Office for National Statistics said that the biggest drivers of inflation last month were air transport, fuel, utility and food bills. Fuel costs rose at their fastest annual rate since July, and food prices showed their biggest annual rise since May 2009.

Mark Bolsom, Head of the UK Trading Desk at Travelex Global Business Payments commented, “This figure pre-dates January’s VAT hike which makes it all the more concerning. It will heap pressure on the Bank of England to raise interest rates. Unfortunately, an interest rate rise will come as a blow to consumers who have less disposable income due to the Government’s VAT hike. The Bank really is in a very tricky situation.

“As food prices and oil costs continue to rise, it is now looking increasingly likely that consumer price inflation will hit 4% in the first quarter of 2011.”

Sterling continued its climb against the US dollar and was steady against the euro after the news. It rose 0.47% against the dollar to $1.6045 after the news, and remained at 1.1955 against the euro.

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