Pound Up As UK Inflation Rises

The pound is up this morning, extending recent gains, following news that UK annual inflation increased to 2.9% in December, that's the highest level since last March, and a full one point increase on November.

Whilst punters had been expecting an increase (to around 2.5-2.6%), this is more than was anticipated, and might just mean that interest rates may have to rise sooner rather than later.

It would also appear to indicate that a rise above 3% is on the cards for January, given the return to 17.5% VAT. That would be more than one point above the government's target rate of 2%, meaning that poor old Mervyn King will have to get his pen and paper out to write a sorry note to Alistair Darling.

The euro remains weak, dragged down by Greece, with the US dollar faring little better fuelled by investor worries about the huge amount of debt taken on to push the country out of recession.

The Telegraph is reporting that Golden Sacks now expect the UK economy to grow faster than many other major economies. UK interest rates will start to increase by the end of the year they say, whereas US rates will stay where they are until 2012, they reckon.

The pound is now at it's best levels in more than a month against the dollar, having been as high as 1.6450 this morning, and at it's best in two months against the euro at around 1.1450.