UK inflation rose to 3.1 per cent in November, the highest rates for more than five years, according to data released by the Office for National Statistics (ONS) this morning (12 December).
This compared with 3 per cent for October.
The Bank of England increased interest rates at the start of November, which economic theory suggests should lead to a fall in inflation.
David Cheetham, chief market analyst at XTB.com, said the higher inflation rate could force the Bank of England to put interest rates up at a faster pace than it previously intended to.
Under the terms of its mandate from the government, the Bank of England is required to write to the chancellor if inflation missed the 2 per cent target by more than 1 per cent.
Ben Brettell, senior economist at Hargreaves Lansdown, said the reasons for higher inflation are "easy to explain", with the fall in the value of sterling relative to other currencies the major contributor.
Ben Lord, who runs the £1.1bn M&G Inflation Linked Corporate Bond fund, said he thinks UK inflation has peaked, as the impact of the fall in sterling will fall out of the data.
He said: "With wages failing to keep pace with the cost of living, consumers could face another squeeze in the run up to Christmas.
"Indeed, a survey by Good Housekeeping magazine, found that the cheapest supermarket Christmas dinner will be 18 per cent more expensive compared to last year – some way ahead of the rise in the Consumer Prices Index (CPI).
"What should we expect next for UK inflation? The good news is that the fall in sterling has probably now largely passed through to consumer prices.
"Providing we do not see a renewed fall in sterling, or an unexpected spike in global commodity prices, we think UK inflation may well have peaked for the time being.
"However, we should not be complacent either as inflation has a habit of creeping up on us when we least expect it.
"With parts of the index-linked bond market still providing relatively inexpensive protection against a future inflation shock, we believe these assets still merit a place within a well-balanced portfolio."
Sterling was up around a third of a cent against the dollar in the immediate aftermath of the inflation data being released, as the market anticipated UK interest rates will have to increase at a faster pace if inflation continues to be consistently high.
david.thorpe@ft.com
