According to the Guardian, British inflation unexpectedly rose to 4% in December. This is the first increase in 10 months and is believed to be the result of rising tobacco and alcohol prices.
The hike complicated the timing of a rate cut by the Bank of England this year and sent the FTSE 100 down 1.5%, its biggest one-day drop since August last year.
Data from the Office for National Statistics showed that UK annual inflation has continued to rise from 3.9% in November, contradicting forecasts of a modest decline to 3.8% from economists in the City of London.
The increase in annual inflation is thought to be due to increases in tobacco prices due to tariffs and alcohol prices. It is reported that since 2006, the cost of buying tobacco has made the largest contribution to inflation, with tobacco prices rising by 16% and alcohol prices rising by 9.6%.
Grant Fitzner, chief economist at the Office for National Statistics, said rising tobacco and alcohol prices were "partly offset by a fall in food inflation, which is still rising but at a much lower rate than this time last year. At the same time, Prices for goods leaving the factory have changed little over the past few months, while raw material costs remain lower than a year ago."
Core inflation, which excludes items such as energy, food, alcohol and tobacco, was unchanged at 5.1%.