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January 20, 2010

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Consumer prices in UK rise at fastest pace

BRITISH consumer prices rose at their fastest annual pace in nine months in December after 2009 prices faced an unflattering comparison with a year earlier when value-added tax was cut and recession-hit stores launched heavy pre-Christmas discounting.

The Office for National Statistics said consumer prices rose 0.6 percent last month, taking the annual rate up to 2.9 percent from 1.9 percent in November. That was the biggest monthly rise in the annual rate since records began and beat analysts' hopes for an increase to 2.6 percent.

Retail price inflation, which includes more housing costs, rose to 2.4 percent from 0.3 percent - its highest since November 2008 and the biggest monthly change in the annual rate since July 1979.

Analysts had expected a reading of 2.1 percent.

The pound jumped to a four-month high against the euro and gilt and interest rate futures plunged as markets bet the Bank of England may have to start tightening monetary policy sooner than planned, given the speed with which inflation is moving above the BoE's 2 percent target.

"This number must raise questions at the BoE as to why inflation hasn't slowed more in the light of the economic decline," said David Page, economist at Investec. "The question now is not whether the BoE will do more QE (quantitative easing) but when it will start tightening."

Economists reckon the BoE will delay adding to its 200 billion pound quantitative easing plan next month.


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