Bank of England's rate cut hope dashed by sky-high inflation

The rise in the Consumer Prices Index is forecast to break through the four per cent barrier - twice the Government's target - marking its highest level since May 1992.

That will shatter any hopes that the Bank of England can rescue the housing market with a rate cut.

The Bank of England will publish its quarterly inflation report on Wednesday

Rising food and fuel costs underlie the surge, though other prices have been caught in the inflation spiral.

As families struggle to make ends meet, the Bank will publish its quarterly inflation report on Wednesday, giving its detailed thinking on the sharp rise in the cost of living.

Adding to the gloom will be the official joblessness figure, also due on Wednesday, which is expected to show unemployment creeping back towards the one million mark, with subdued rises in average earnings.

The Bank's Monetary Policy Committee is supposed to set the interest rate to keep the CPI rising at two per cent a year. In the year to June, the CPI was rising at 3.8 per cent.

'We are looking for the CPI to have risen to 4.1 per cent in the year to July. It could reach five per cent in the year to August,' said George Buckley, chief UK economist at Deutsche Bank.

Ross Walker, economist at Royal Bank of Scotland, said: 'We are forecasting the annual rate to have risen by half a point to 4.3 per cent in the year to July.

'That is a big jump and it leaves the rate uncomfortably high. It is still food and fuel pushing up prices.'

He said some of this was caused by the contrast with falls this time last year in petrol and utility prices and in the cost of seasonal food.

'Also crude oil was up in June. Crude and gas are now well off their peaks, but that came too late for the July inflation figure,' said Walker.

The broader-based Retail Prices Index (RPI) is rising even faster, at 4.6 per cent in the year to June from 4.3 per cent in the year to May.

The RPI minus mortgage interest payments - known as RPIX - is rising at 4.8 per cent, up from 4.4 per cent.

Up to January 2004, the MPC was told to keep inflation at 2.5 per cent a year, as measured by the RPIX.

 • An escalating number of business failures will be highlighted in figures out this week, with more than 3,000 petitions expected to be presented to civil courts in England and Wales in the second quarter. Construction firms, estate agents and mortgage advisors are being hit, as are pubs and restaurants.