UK inflation jumps to 3.7% in December

The Office for National Statistics (ONS) said today that the UK Consumer Prices Index (CPI) annual inflation rate rose to 3.7% in December from 3.3% in November.  This was the biggest ever month-on-month rise and will put more pressure on the Bank of England to raise interest rates.

According to the ONS, air transport and rising fuel, utility and food prices were the biggest drivers of inflation last month. 

Inflation has risen in each of the last three months and is now well above the Bank of England’s 2% target.  When the Bank’s Monetary Policy Committee met last week, it decided to once again keep interest rates on hold at 0.5% and while its members had an early estimate of today’s data when making their decision, it was not enough to prompt sufficient support for a rate rise.

In recent months, Andrew Sentance has been the only MPC member to vote for a rise in rates (to 0.75%) and he’s done so at each meeting since June.  We’ll have to wait until the 26th January, when the minutes for the latest meeting are released, to see whether he stuck to his vote and whether any other members voted the same way.        

In the meantime, this significant monthly leap in inflation is likely to raise market expectations of higher interest rates, which means we could see lenders increasing the cost of fixed rate mortgages in the near future.

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