UK inflation soars

UK headline inflation rose 3.7% y/y 0.3 higher then the 3.4% expected. Not surprising this as pretty much everything is getting more expensive.
Cable saw a 70 pip spike upwards and Gilts saw a 30 tick spike downwards. Some are saying rates could be raised before June to tame inflation, but will unlikely to be next month as data is still quite weak.

ANALYST REACTION

GEORGE BUCKLEY, DEUTSCHE BANK

"The numbers are obviously a lot worse than expected. I think it does raise the risk that the Bank of England will have to move interest rates in the first half of this year. We don't think they'll move next month because the data has actually been a little bit weaker during the start of this year, for example the PMI services, the trade figures, on average. But I think they will probably have to move towards the middle of the year and I think there's support to move towards that point, so for example at the May inflation report."

JONATHAN LOYNES, CAPITAL ECONOMICS

"December's worse than expected UK consumer prices figures will do nothing to comfort those concerned that the Monetary Policy Committee is neglecting its inflation-targeting remit.

"However, it is likely to have been reassured that the forces lifting inflation do not reflect underlying price pressures in the UK economy.

"With fundamental drivers like spare capacity, wages growth and money growth all still pointing to considerably lower inflation in the medium-term, we continue to think that the MPC should - and probably will - hold its nerve and continue to provide the economy with the strong support it will need to withstand the coming fiscal tightening."

HOWARD ARCHER, IHS GLOBAL INSIGHT

"Higher petrol prices, food prices and utility bills all contributed to December's spike up in inflation. It also appears that the severe weather in December did not push retailers into offering significantly more discounts and promotions to try to boost sales over the critical Christmas period.

"Despite the undeniably significant risk to growth coming from the fiscal tightening that is now increasingly kicking in, there is mounting pressure on the Bank of England to enact at least a token near-term interest rate hike to send out the message that it has not taken its eye off the inflation ball."

ROB CARNELL, ING

"More headaches for the Bank of England's monetary policy committee with the release of December inflation.

"With the bulk of the government's public spending cuts yet to be fully felt, many on the MPC will no doubt argue that more time is needed to assess the impact on the economy, before responding to high current inflation - after all, the MPC targets inflation two years ahead, not today's rate.

"Nonetheless, pressure on the doves to change their views is building. Markets will increasingly price in tightening this year.