LONDON, Jan 17 Reuters The pound rose on Wednesday after data showed Britain39;s annual rate of consumer inflation increased in December for the first time in 10 months and came in higher than expected, challenging expectations that Bank of England rate cuts are near.

Sterling was last up 0.1 at 1.2650, having been down 0.19 before the data.

The pound also strengthened versus the euro, which was down 0.16 at 85.93 pence, .

Official figures showed Britain39;s annual rate of consumer price inflation accelerated to 4 in December from 3.9 in November which was its lowest in more than two years.

A Reuters poll of economists had pointed to a reading of 3.8.

The data, which follows biggerthanexpected falls in inflation in recent months, potentially adds to concerns at the Bank of England, which raised interest rates to a 15year high of 5.25 in August in a bid to rein in price rises.

Wednesday39;s figures showed that core inflation which excludes volatile food, energy, alcohol and tobacco prices was 5.1 in December, the same rate as November.

Services inflation increased to 6.4 in December from 6.3 in November.

The stronger than expected reading for both core and services inflation in December .. are disappointing and will discourage the BoE from beginning to cut rates sooner, analysts at MUFG said in a morning note.

The UK rate market is not fully pricing in the first 25bps rate cut from the BoE until June. The hawkish repricing of the UK rate curve has contributed…