UK inflation surges to 2.9%
In a surprise move it has been revealed that the UK inflation rate increased to 2.9% in December, a far cry from the 1.9% seen in November and expectations of 2.4% for December. This has sent shockwaves through the financial markets with a suggestion that UK base rates will almost certainly begin to increase in the latter part of 2010. A number of analysts had believed that UK base rates would remain at around 0.5% until 2012 with this now seems a forlorn hope.
It seems that a mixture of an increase in the rate of VAT and less discounting from UK retailers over the festive period have come together to create this potentially dangerous economic environment. It is almost certain that the inflation rate for January 2010 will push well above the government's 3% limit and prompt a letter from the Bank of England explaining why the rate has risen above the target of 3%.
At a time when the UK economy is still struggling to move into a growth phase the revival of the rate of inflation could not have come at a worse moment. If UK base rates continue to increase in 2010 this will restrict investment into business, restrict access to finance for consumers and reduce disposable income across the UK.
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