Soaring petrol prices pushed British inflation above its target in July to the highest level since comparable records began in 1997, reducing expectations of further interest rate cuts.
The Office for National Statistics said the consumer price index rose 0.1 per cent on the month, taking the annual rate up to 2.3 per cent from 2.0 per cent in June.
This was the first time it has risen above the Bank of England's 2.0 per cent target since the CPI was adopted as Britain's main inflation measure in December 2003. Until June, it had always been below target.
The July number exceeded expectations and pushed the pound up and interest rate futures sharply lower as dealers figured that more cuts in borrowing costs were not on the cards for now.
"July's UK consumer prices are significantly worse than expected and will no doubt dampen hopes of further near-term cuts in interest rates," said Jonathan Loynes, chief UK economist at Capital Economics.
The BoE's Monetary Policy Committee cut its main interest rate this month by a quarter-point to 4.5 per cent in response to news that economic growth is slowing, and many analysts have been predicting a further rate cut before the end of the year.
The chief driver of the jump in inflation was petrol prices topping 90 pence a litre, adding 0.13 percentage points to the annual CPI rate, as the cost of crude oil in world markets has hit record highs.
Soaring energy costs also pushed up US consumer prices in July at their fastest pace in three months and inflation in the 12-nation eurozone stands above the European Central Bank's 2 percent threshold thanks to high oil prices.
August's British inflation rate may get a further boost as the cost of crude oil has risen even further this month. London Brent crude hit a record high of $66.85 a barrel on Monday.
"The acceleration in the July data is not the end of the story. Inflation is likely to continue to climb until September as oil prices test new highs," said Alan Clarke, UK economist at BNP Paribas.
And more worryingly for the BoE, oil was not the only factor pushing inflation up. Furniture also had a large upward effect as price recoveries in some major retail chains offset summer sales in others.
"For all the moans and groans from the retail sector, there is a distinct lack of aggression on prices," said Geoffrey Dicks, UK economist at RBS Financial Markets.
"Our reaction to last week's Inflation Report press conference was 'So why did they cut rates?' Today's data, which were not known to the MPC at the time, might prompt the question again."