Inflation seen climbing higher

The inflation rate is expected to have risen even further above the Bank of England's two per cent target last month as petrol prices soar.

Analysts polled by Reuters predicted the CPI rate would hit 3.6 per cent, up from 3.3 per cent in May and the highest since the Bank took control of interest rates more than a decade ago.

"UK inflation had been a growing nightmare and we expect no respite in June," said David Page, economist at Investec. "This month we expect additional pressure from the energy sector.

Petrol prices have shot up again as the cost of crude oil hit new records. Figures, out on Monday, showed oil prices in June rose at their sharpest annual rate since June 2000 - 86.4 per cent.

Utility bills should also have an upward effect on inflation as last year's falls are not repeated.

Inflation could soon top four per cent as food and fuel prices are rising right across the world.

But policymakers are also worried by slowing growth as house prices are sliding and hitting consumer confidence and property-related sectors hard.

Bank Governor Mervyn King said on Monday that there was little policymakers could do to bring down the current rate of inflation which was being pushed higher by rising commodity prices.

To do so, he said, would require large interest rate rises that could have a severe impact on the economy.

Mr King said the dilemma facing policymakers was that they needed to balance the risk of higher inflation now becoming entrenched in people's mind and clear downside risks to growth pushing inflation below the target in the medium-term.

"The MPC will need to guard against second round inflation effects, even in the face of rising signs of recession, and will likely keep rates unchanged into next year," said Mr Page.