MercoPress. South Atlantic News Agency

UK December inflation jumps to 2.9%, biggest rise in a single month

PM Brown downplayed the impact

Inflation in the United Kingdom jumped at a record rate in December, official figures have shown. The Consumer Prices Index (CPI) hit 2.9% last month - much higher than expected by the City - compared with just 1.9% in November.

The increase is the biggest rise in the annual rate of CPI inflation in a single month, according to the Office for National Statistics (ONS). The surge was partly because of the reduction in VAT to 15% in December 2008.

Adding to the inflationary pressure was far less discounting from retailers in the run-up to Christmas and unchanged fuel prices, compared with sharp falls a year earlier.

The extraordinary factors take the CPI above the Bank of England's 2% target for the first time since last May. That makes an open letter from Bank of England Governor Mervyn King to the Chancellor virtually certain when inflation figures for January are released next month.

This is because of the return of VAT to 17.5% this month, which will add to inflation when contrasted with 12 months earlier when the tax was unchanged.

The Bank had forecast a sharp spike in CPI at the beginning of the year, but this bigger-than-expected rise may also prompt it to begin moving interest rates up from their current record low of 0.5% earlier than expected by the market.

British Prime Minister played down the increase, saying it had been expected. Gordon Brown said: “I don't think we should read too much into one month's figures on inflation.

”Generally, Britain has had for 12 or 13 years a low inflation environment that has made possible low interest rates.”

The ONS figures showed average petrol prices edging 0.2p higher last December compared with a 6p fall a year earlier, which was the second biggest monthly fall on record.

Clothing and footwear prices fell by far less than a year ago, when the temporary VAT cut came into effect and many retailers were forced into early sales to tempt shoppers through the door during the worst point of the recession.

The Retail Prices Index, which includes mortgage interest payments, also jumped from 0.3% to 2.4% on the month - the biggest monthly rise in the annual rate since 1979.