UK inflation jump far bigger than expected

Inflation in UK shot up last month to more than twice the Bank of England's target as food prices rocketed, official data showed yesterday, dousing expectations of any near-term interest rate cuts.

The Office for National Statistics said consumer prices were unchanged last month, which took the annual rate of inflation up 0.6 percentage points to 4.4 per cent.

This was both the biggest jump and the highest rate since the data series began in 1997, and left inflation far above the Bank's two per cent target.

Analysts had predicted a rise to 4.1 per cent and interest rate futures fell on the report as dealers bet interest rate cuts to boost the slowing economy were unlikely soon. Economists said that even a rise in interest rates in the next month or two could not be ruled out.

"It is very disappointing data with widespread signs of higher price pressures," said Philip Shaw, chief economist at Investec.

"It will undoubtedly convince some members of the Monetary Policy Committee to vote for higher rates but we doubt they will reach a majority."

Bank of England policymakers had seen these figures at their meeting last week when they left rates unchanged at five per cent. Their new quarterly forecasts due on Wednesday are almost certain to show a much higher near-term inflation profile.

Their economic growth outlook, however, is likely to be much lower.

Recent data point to an economy teetering on the edge of recession as house prices slide and consumer confidence crumbles.