The new figure supports the Bank of England’s surprise decision to raise interest rates last week, in order to curb inflation.
However, the shock rate hike has prompted further fears that increased borrowing costs could cause the housing market to cool. Although analysts expected the CPI figure to have increased in light of the 0.25 per cent interest rate hike last week, they did not expect the figure to be so off the government target of
2 per cent.
Rising fuel prices have been blamed for driving inflation, however The Retail Price Index (RPI), which includes mortgage interest repayments and house prices in its inflationary calculations reached 4.4 per cent in December, rising from 3.9 per cent.
as a result of increased consumer costs and a thriving economy, the MPC will be forced to continue subscribing interest rate rise until inflation has reached a healthy level.
Andrew Sentence, MPC member at The Bank of England, said: “If inflation is to be bought back to target and remain there, demand needs to be appropriately restrained and expectations of inflation by wage and price-setters must remain constant with the 2 per cent CPI target.”
