The clock began ticking on the next interest rate rise yesterday after inflation shot to its highest rate since the current inflation measure was introduced almost a decade ago, economists said.
Official data showed consumer price inflation surged to 2.7 per cent in November, up from 2.4 per cent in October on the back of the highest rises in utility bills for 26 years.
This marked the seventh month it has exceeded the Bank of England's 2 per cent target and took it dangerously close to the 3 per cent level at which Mervyn King, the Governor, would have to write a letter of explanation to Gordon Brown.
The pound jumped to a three-month high against the euro, climbing 0.5 per cent to 67.34p, and to $1.9660 against the dollar on expectations that the Bank will lift rates for a third time since the summer to 5.25 per cent early next year.
Big swings in the cost of petrol on the back of soaring global energy prices in the summer, last-minute package holidays, and smaller increases in the cost of food, especially fresh vegetables, contributed to the jump in inflation. The price of CDs and DVDs also rose compared with falls a year earlier, while prices for digital cameras rose by less than a year ago, the Office for National Statistics said.
"Today's release will give hawks on the Monetary Policy Committee more ammunition to argue the case for a further rate hike next year, perhaps at the February inflation meeting," Rob Carnell, strategist at ING, said. The retail price index, the Bank's old inflation measure that includes mortgage costs, rose from 3.7 per cent to 3.9 per cent, which was the highest level since 1998. Within this, fuel and light costs jumped by 29.5 per cent, taking them to their highest level since June 1980.