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U.K. Inflation Rate Hits 3%

Consumer price inflation rose to 3% in the United Kingdom in December compared to a year ago, the government said Tuesday, a full point over the official target and the highest rate since 1997.

The Bank of England, seeking to keep inflation under control, surprised markets last week by raising the base interest rate a quarter of a percentage point to 5.25%.

"Given evidence suggesting that wage rises are picking up, there remains the real risk that the Bank of England will hikes rates again. We would expect any move to come in the next two months," said James Knightley, an economist at ING Bank.

"This is a pretty unhealthy report all round for the Bank of England to digest, fully justifying the immediate hike in interest rates," said Howard Archer of Global Insight. He also believed a further interest rate increase was likely.

The December consumer inflation rate was just short of the threshold that would require the governor of the independent Bank of England governor to write to the government to explain the rise.

The increase compared to a consumer inflation rate of 2.7% in November.

Higher prices for fuel, furniture, household goods and recreation were the main contributors to the increase, the Office for National Statistics said.

The retail price index, which includes housing costs, was up 4.4% in December, the highest since December 1991.

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