The UK consumer prices index has risen to 3.7 per cent in December, its highest rate in eight months, according to the Office for National Statistics.
The rate is up from 3.3 per cent in November 2010, while the retail prices index rose from 4.7 per cent to 4.8 per cent.
The hike comes amid concerns that the rise in VAT from 17.5 per cent to 20 per cent, which came into effect from January 4, 2011, could act as a further catalyst for a rise in inflation.
Last week the Bank of England left interest rates on hold at their record low of 0.5 percent for the 22nd month in a row.
Consumer price inflation has been at 3 per cent or more since last January, compared to the government target of 2 per cent. Bank of England governor Mervyn King has been required to write four letters to chancellor in 2010 expaining the inflation level.
Drawbridge Finance CEO Jonathan Samuels says: “”The odds on an interest rate rise in the first half of the year shortened considerably on the back of 3.7 per cent inflation.
“If this rising trend continues for much longer, it will be very hard for the Bank to justify keeping interest rates at their current level.
“There comes a point when rates simply have to be raised, irrespective of the danger of undermining the recovery.”