The Bank of England surprised markets today by raising interest rates a quarter percentage point to 5.25 per cent, their highest level in five-and-a-half years.
Most analysts thought the central bank would wait at least another month to see whether wages were heading up in the new year and for a clearer reading on the consumer sector.
The Bank of England said in a statement: "In the United Kingdom, output continues to rise at a firm pace. Domestic demand has grown steadily, and credit and broad money growth remain rapid. The international economy continues to grow strongly.
"Sterling has risen and oil prices have fallen back. But the margin of spare capacity in the economy appears limited, adding to domestic pricing pressures. CPI inflation was 2.7 per cent in November.
"It is likely that inflation will rise further above the target in the near term, but then fall back as energy and import price inflation abate. Relative to the November Inflation Report, the risks to inflation now appear more to the upside.
"Against that background, the committee judged that an increase in Bank Rate of 0.25 percentage points to 5.25 per cent was necessary to bring CPI inflation back to the target in the medium term," the bank said.