According to the Office of National Statistics, the Consumer Price Index jumped in December to 2.9 per cent - up from 1.9 per cent in November 2009. This was its biggest jump since records began in 1997. The Retail Price Index also rose sharply, up from 2.1 per cent in November to 2.4 per cent in December.
However, the jump in inflation was forecast by the Monetary Policy Committee so will have come as no surprise to those responsible for setting interest rates. The rise is down to energy price falls and the cut in VAT from 17.5 to 15 per cent. January's inflation figure is expected to climb even higher - to over 3 per cent.
Although the Bank of England is set a target of keeping inflation at 2 per cent, we don't expect the Bank to raise rates as a knee jerk reaction. Quantitative easing is likely to end in February but concerns about the growth of the economy and rising unemployment mean that interest rates are unlikely to move for some time.
Borrowers who are on variable-rate deals and who are concerned about the possibility of rising interest rates should contact their broker for reassurance and advice.