UK inflation hits highest in 16 years

Britain's inflation rate rose to its highest level in 16 years in August to more than double the central bank's target and requiring the Bank of England to explain publicly why prices are rising so fast.

The Office for National Statistics said consumer prices rose 0.6 per cent on the month, taking the annual rate to 4.7 per cent from 4.4 per cent in July.

This was the highest since the series began in 1997 and the ONS said it was the highest since April 1992 using historical data based on a different measure of inflation.

The main driver was soaring gas and electricity bills, which added 0.3 percentage points to the annual CPI rate. Food prices also had an upward impact but this was offset by lower petrol prices.

The figures underline the BoE's caution about cutting interest rates to revive a stuttering economy but market expectations of rate cuts have gone up sharply this week following trouble at banks.