A surge in oil prices drove British consumer price inflation up far more than expected in December to an eight month high of 3.7 percent.
That is well above the Bank of England’s own forecasts and a great deal higher than its target of around two percent, putting more pressure on the Bank to raise interest rates soon.
Inflation is expected to climb even further due to the recent increase in the VAT sales tax.
The pound shot up more than half a cent against the dollar to an eight week high in reaction.
Inflation has been at least a percentage point above the BoE’s two percent target throughout 2010.
Rising inflation expectations among the general public and bond investors have caused markets to expect a first interest rate hike by the middle of 2011.
Britain’s Office for National Statistics said 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.
In November the rate was 3.3 percent.