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UK inflation highest in a decade

The latest data on UK inflation explains the surprise rate rise from the Bank of England last week.

German investor sentiment at six month high; Tesco reports strong Christmas; European car sales look weak; market indices Chris Burns reports for Reuters

Business Update. I'm Chris Burns in London.

The latest data from the UK shows that inflation there accelerated to 3 percent last month, its highest since comparable records began 10 years ago.

The figure goes some way to explain why the Bank of England surprised the markets by raising interest rates to 5.25 percent last week. The Bank's Monetary Policy Committee had seen this latest data before making its decision on rates. Some economists are predicting a further rate rise soon.

German investor sentiment has improved to touch a six month high in January - according to the latest survey from the ZEW Institute.

Analysts say the stronger than expected reading suggests Europe's biggest economy is well placed to shrug off a three percentage point hike in sales tax and the euro region could cope with higher borrowing costs from the European Central Bank.

Britain's biggest retailer Tesco is reporting a near 6 percent rise in underlying Christmas sales beating most of its rivals and also beating most analysts forecasts. Strong sales at its internet operation and sales of organic food and premium products have boosted the store chain's performance.

Not such good news in the car sector.

European new car registrations stagnated in December. German premium brands like Mercedes Benz and BMW enjoyed 20 percent rises in new registrations appearing to gain from the rush to buy new cars in Germany before a big hike in value added tax. But overall nearly all the major mass-market brands Volkswagen, Renault and Peugeot suffered a faster drop in sales than the rest of the market.