The rate of price growth in the U.K. surged to its highest level in eight months during the final month of 2010, intensifying concerns that the Bank of England must respond with an interest rate hike, according to The Daily Telegraph. One Tuesday, the Office for National Statistics reported that during the year to December, consumer prices in the U.K. added 3.7%, surging faster than the 3.3% annual increase recorded in November, which is the largest monthly acceleration on record. The jump outpaced economists’ expectations for a rise to 3.4%, and preempted the official forecast that inflation would only rise to 3.6% in the first quarter of 2011.
The latest consumer price index data closes a full 12-month cycle of inflation being elevated more than one point above the 2% target set by the central bank, and the Monetary Policy Committee will now face more pressure to increase interest rates from the record low of 0.5%. Simon Ward of Henderson Global Investors said, “Inflation is now certain to move above 4% in early 2011,” which could happen quickly with the value-added tax increasing in January. Some analysts have noted that looming budget cuts may make it impossible for policymakers to safely raise interest rates without gambling the stability of the U.K. economic recovery.
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