Data this morning has revealed another steep rise in annual inflation in the UK. The rate has now risen to its highest point since December 2008.
 

The Consumer Price Index, used as a measure of inflation, shows the rate rose to 3.5% in January, which is broadly in line with median forecasts. The rate does mean that the Bank of England Governor now has to write an explanatory letter to the Chancellor to explain why inflation has moved more than 1% above the government's 2% target. This letter will be just the sixth since the bank was granted independence in setting interest rates in 1997.

 
“Unlike last month, the market reaction to this morning’s figures has been relatively muted. Although inflation has reached a 14-month high, the Bank of England has repeatedly said that this is only a short term blip. A weak pound and rising VAT have led to a sharp increase in prices, though the spare capacity in the market should bring prices back down in the medium term,” commented Duncan Higgins, senior analyst at Caxton FX.
 

Higgins continues, “The market has previously speculated that UK monetary policy may need to be tightened as inflation rises. However, persistent rhetoric from the BoE downplaying the impact of higher prices has seen the pound remain broadly unmoved.”
 

Currently sterling is holding around 0.2% lower against the euro this morning, with the price hovering below 1.15. The pound remains up against the US dollar but has come down around half a cent from this morning’s high.