LONDON, Jan 18 Reuters The British pound edged up on Thursday, extending the previous day39;s gains after the annual rate of consumer price inflation unexpectedly increased last month, pushing markets to temper rate cut expectations.

The consumer price index unexpectedly increased to 4.0 yearonyear in December from November39;s morethantwoyear low of 3.9, giving a lift to sterling and sending bond yields higher as markets wager that the Bank of England BoE will keep interest rates higher for longer.

The central bank raised rates 14 times between the end of 2021 and August last year, taking rates to their current 15year high of 5.25 as inflation rose to a more than fourdecade high of 11.1 in late 2022.

Core inflation, which strips out more volatile food, energy, alcohol and tobacco components, stayed at 5.1 in December, in contrast with expectations for a moderation to 4.9.

Sterling has fought back on the basis that December39;s CPI print proved to be stickier than expected, said Kyle Chapman, FX markets analyst at Ballinger Co.

At 1030 GMT, the pound was up 0.1 against the dollar to 1.2683, extending Wednesday39;s 0.3 rise that snapped a threeday decline against the greenback.

The pound was down slightly at 85.89 pence per euro , after a 0.2 rise the day before.

Markets quickly moved to price out British rate cuts following the inflation report, with interest rate futures implying a less than 50 chance that the BoE loosens policy at its May 9 meeting, from…