The Bank of England’s latest quarterly inflation report will provide the economic highlight this week, while retailer Thorntons and bookmaker Ladbrokes are among those due to report.

Inflation will take centre stage among the week’s economic data as the Bank of England’s quarterly report comes a day after official figures for January’s cost of living tomorrow.

Inflation unexpectedly shot up to 3.7 per cent in December, from 3.3 per cent in November, to its highest level since April, the Office for National Statistics (ONS) said. Inflation expectations driven by the January VAT hike and soaring oil and food prices, were all to blame.

The surge piled pressure on the Bank of England to raise interest rates to curb the soaring consumer prices index rate of inflation.

But just as the hawkish members of the Monetary Policy Committee (MPC) – such as Andrew Sentance – were looking close to getting their way, the ONS revealed the economy went into shock decline in the final three months of 2010 by 0.5 per cent.

The figures highlighted the fragile position the economy has found itself in - teetering close to a period of so-called stagflation, when sluggish growth and high unemployment combine with soaring prices.

Possibly considering the weaker than expected fourth quarter GDP figures, the MPC held its nerve and kept rates at their 0.5 per cent historic low for a 23rd consecutive month. Further pressure is expected from January’s CPI figures, as analysts expect the rate to surge again to around 4.1 per cent. However, the Bank has previously stated it expects inflation to move towards five per cent in the coming year. So analysts will be looking closely at the latest inflation report on Wednesday and listening keenly to what Mervyn King has to say in his speech to determine when the MPC believes inflation will return to the two weeks target.

Mark Cliffe, chief economist at ING Group, said while the Bank may come under pressure to lift rates, the inflation threat is exaggerated.

He said tax rises were having a temporary impact, while food and energy prices should peak this year and wage inflation will be subdued as unemployment is expected to rise. “Interest rates are unlikely to rise as quickly as expected,” he added. Hovis-to-Mr Kipling firm Premier Foods is expected to reveal a decline in profits on Tuesday as the firm battles intense competition in the grocery market.