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Bitish inflation jumps to 2.9%

January 19, 2010 | AFP

LONDON — Annual inflation in recession-hit Britain surged to 2.9 percent in December, partly owing to changes in taxation levels, official data showed on Tuesday.

"CPI annual inflation -- the government's target measure -- was 2.9 percent in December, up from 1.9 percent in November," the Office for National Statistics (ONS) said in a statement.

"The increase in the CPI annual rate of 1.0 (percentage point) between November and December 2009 is the largest ever increase in the annual rate between two months."

Consumer Prices Index (CPI) inflation increased by 0.6 percent in December from November, the ONS added.

Market expectations had been for an annual gain of 2.5 percent and a month-on-month increase of 0.2 percent, according to analysts polled by Dow Jones Newswires.

"This record (annual) increase is due to a number of exceptional events that took place in December 2008," said the ONS.

The figures were skewed by lower inflation last year after the government had cut taxation on goods and services in December 2008 to help revive the economy as Britain struggled with recession.

That month, inflation was also lower because of falling oil prices and seasonal sales.

The government had slashed VAT, or value added tax, to 15.0 percent in a bid to boost consumer spending.

However, VAT reverted back to its pre-recession level of 17.5 percent on January 1.

"The rise in headline CPI inflation ... was primarily driven by the anniversary of (the) cut in VAT," said Capital Economics analyst Jonathan Loynes on Tuesday.

"The renewed rise to 17.5 percent will have a further upward effect in January," he warned.

The Bank of England, tasked by the government with keeping annual inflation close to 2.0 percent, has forecast that the rate will fall back towards 1.0 percent later this year.

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