UK inflation hits 3.3 pct in May, BoE will have to explain

Britain's inflation rate rose more than expected in May to its highest since the Labour government came to power in 1997 and the Bank of England will now have to explain how it will bring prices back under control.

The Office for National Statistics said on Tuesday consumer prices rose 0.6 percent last month, taking the annual rate up to 3.3 percent from 3.0 percent in April.

Analysts had expected a reading of 3.2 percent and May's figure is the highest since the series began in 1997.

Under the BoE's remit, Governor Mervyn King has to write an open letter to the government if inflation deviates more than one percentage point away from the official two percent target.

This has only happened once before -- last April -- since the BoE was given control of interest rates 11 years ago.

While the spike in inflation will likely reinforce market expectations of higher interest rates ahead, the BoE has been expecting the rise. It forecast last month that inflation could rise near to 4 percent.

Its policy direction is likely to be guided by the outlook for inflation over a two-year horizon, especially as a slowing economy is expected to tame price pressures.

King, whose letter is published at 0930 GMT, will likely blame soaring food and fuel prices which are rising across the world and over which policymakers have little control.

Food and non-alcoholic beverages added 0.14 percentage points to May's annual rate -- the largest contribution. Housing and household services added 0.09 percentage points as utility bills rose.

The BoE's dilemma is that growth is slowing at the same time as inflation is rising rapidly, a situation that is being mirrored globally.

Euro zone inflation hit 3.7 percent this week and the European Central Bank is expected to raise interest rates, perhaps as soon as next month.

U.S. producer prices data due later on Tuesday are also expected to show an acceleration in raw materials costs and there has been much speculation the U.S. Federal Reserve will have to raise interest rates later this year, even though the economy is still reeling from a credit crunch that started last August.