LONDON (Reuters) - Britain's inflation accelerated in December at a record pace, prompting worries that interest rates might rise sooner than expected, though the surge was largely due to an unflattering comparison with a year earlier.

The jump left markets keenly eyeing a speech due later from central bank governor Mervyn King for signs of the impact on the bank's medium-term inflation outlook, but most were still upbeat on the chances of inflation eventually coming back to target.

Base effects from December 2008's cut in value-added tax, savage pre-Christmas discounting and near-record drop in oil prices accounted for the jump in inflation a year later. Sterling hit a four-month high against the euro and bonds tumbled on the news.

Consumer prices rose at a year-on-year rate of 2.9 percent in December — a nine-month high — and a full percentage point faster than the 1.9 percent recorded in November, the biggest month-to-month jump since records started in January 1997.

Economists had expected a rise to 2.6 percent.

The longer-running retail price index, which includes more housing costs but is not targeted by the Bank of England, rose to 2.4 percent from 0.3 percent, the highest since November 2008 and the biggest monthly increase in the annual rate since 1979.

Gilt and interest rate futures plunged as markets bet the Bank of England may have to start tightening monetary policy sooner than planned, given the speed with which inflation is moving above the BoE's two percent target.

"This number must raise questions at the BoE as to why inflation hasn't slowed more in the light of the economic decline," said David Page, economist at Investec.

"The question now is not whether the BoE will do more QE, but when it will start tightening."

Most economists reckon the BoE will hold off adding to its £200 billion ($327.5 billion) quantitative easing programme next month and make no new purchases of gilts. Yesterday's data also hardened expectations it may raise interest rates from a record low of 0.5 percent sooner rather than later. The Bank of England had already flagged up a temporary hike in inflation but forecast that it would fall back to two percent by mid-2010.