Abbey response to UK inflation announcement

Barry Naisbitt, Chief Economist at Abbey said: "The 3% reading for CPI inflation in December is higher than the Bank of England was expecting just a few months ago. It is also as close as it can get to breaching the upper boundary limit of the inflation target. Attention will now turn to next month and the publication of the January figure because the price level fell last January, as it tends to do because of sales discounting.

"If the Governor of the Bank of England is looking to avoid writing his first letter of explanation to the Chancellor he will likely be hoping for the January sales to be an important feature again this month. Looking further out, as the falls in oil and gas prices feed through, the rate of inflation should reduce. But with a larger than expected rise in RPI - the old headline inflation - from 3.9% to 4.4%, taking it to its highest rate since the end of 1991, the Bank of England needs to persuade everyone that inflation is under control. This certainly helps to explain the surprise base rate rise last week."