UK inflation accelerated to the fastest pace in more than two years in January, forcing Bank of England Governor Mervyn King to explain to the government what will be done to tame price gains.
Consumer prices rose 4 per cent from a year earlier after a 3.7 per cent increase in December, the Office for National Statistics said today in London - the highest since November 2008.
The 14th month of inflation above the central bank's 2 per cent target is challenging Mr King's argument that the government's fiscal squeeze will contain price gains.
He will make a second public defence tomorrow when he presents the bank's quarterly economic forecasts amid dissent from policy makers Andrew Sentance and Martin Weale, who have called for higher interest rates to contain inflation expectations.
The pound fell as much as 0.3 per cent against the dollar and the euro after the report, and traded at $1.6045 and 84.36 pence per euro as of 9.43am in London. The yield on the 10- year gilt was down 1 basis point today at 3.831 per cent.
From the previous month, prices rose 0.1 per cent, the first increase in a January from December since records began in 1997. The gain was led by fuel, restaurants, alcohol and vehicles, which the statistics office said were particularly affected by an increase in the VAT rate. The cost of petrol as measured by the consumer-price index rose to a record £1.27 a litre last month.
Chancellor George Osborne raised the sales tax to 20 per cent from 17.5 per cent last month to help reduce the budget deficit. A similar increase a year ago added about 0.4 percentage points to inflation, the statistics office said. It will publish an estimate of the impact of this year's increase in April.
Retail-price inflation, a measure of the cost of living used in wage negotiations, was 5.1 per cent in January, the highest in eight months, from 4.8 per cent in December. On the month, prices by that measure increased 0.3 per cent. Excluding mortgage costs, retail-price inflation was 5.1 per cent.
Bloomberg
