Inflation rises to 2.9%

Inflation in the UK has risen at its fastest annual pace for nine months with the Consumer Prices Index (CPI) reaching 2.9% in December, according to the Office for National Statistics.

This is the biggest ever monthly rise in the annual index since records began and takes the annual rate of CPI – the measure of the average price of consumer goods and services purchased by households – to 2.9% from 1.9% in November.

CPI is now above the Bank of England’s target of 2% for the first time since last May and means that the Bank of England Governor Mervyn King will almost certainly have to write an open letter to the Chancellor when inflation figures for January are released next month.

A large reason for the rise is because VAT was unchanged last month compared with the previous December when the rate was temporary cut to 15%.

The Retail Price Index – which includes mortgage interest payments – increased from 0.3% to 2.4%, its highest level since November 2008.

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