December saw an 8-month high in inflation

As food and petrol prices surged throughout December, inflation was driven up much higher than initial predictions suggested to 3.7pc, an 8-month high and higher that the forecast from the Bank of England.

According to the Office for National Statistics, CPI rose from 3.3pc in November to 3.7pc in December, which was a much higher rate than analysts predicted and the most substantial rise in monthly prices ever recorded.

The BoE is expected to feel further pressure from these figures to increase interest rates through the first half of the year. The rise in VAT is expected to push interest rates up even higher in the first few months of 2011, which has been above its 2pc target for more than a year.

Despite the fears of a wage-inflation spiral getting a foothold on the economy, the amount of slack in the labour market means that the damage will be limited and the MPCs commitment to its targets for inflation suggest that confidence may be waning.

The ONS released figures last month which suggest that the biggest causes of inflation were air transport, fuel and food and utility bills. The cost of fuel rose at its fastest rate since July 2010 while food prices shot up in their biggest annual rise since 2009.

As the price of oil nears $100 a barrel, the BoE’s November predictions are being proven wrong and the central bank, who forecast inflation at about 3.2pc in the final quarter of 2010 are being questioned by recent policy makers who say that inflation could rise to 4 per cent in early January.