Manufacturers to look to exports as domestic demand remains weak

The new figures show that UK inflation moved sharply higher above the Bank of England's target rate in December, up from 3.3% in November to an eight month high of 3.7%. Prices jumped 1.0% compared with November, the largest monthly increase since April 1994. Commenting on the data, Chris Williamson, chief economist at Markit said that rising global commodity prices were continuing to push the prices of many food items, energy and manufactured goods higher, while some retailers may also have been looking to pass the VAT rise on early during the Christmas sales period. He went on: "The data will clearly add to pressure on the Bank of England to raise interest rates sooner than previously expected in coming months. However, the data in fact do little to change the medium term picture, whereby the short-term factors that are currently driving up inflation should disappear, meaning inflation will fall next year. Most importantly, underlying domestic demand remains very weak with signs that economic growth slowed towards the end of last year and is expected to remain subdued in the first quarter. Falling real incomes, high unemployment and widespread job insecurity mean demand is likely to remain lacklustre for some time, and also suggests that higher prices will not feed through to substantially higher wages and salaries. Any rise in interest rates is therefore likely to have little impact on inflation itself."