Monthly inflation at six-year high

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The official Consumer Prices Index (CPI) benchmark of inflation jumped 0.5% to 3% - shattering City forecasts with its biggest monthly rise since July 2002.

The impact of surging gas and electricity bills, food prices and Budget tax hikes on alcohol and tobacco means Bank of England Governor Mervyn King is on the brink of writing his second letter to the Chancellor to explain the rise.

The Bank is charged with keeping CPI within 1% of its 2% target but Mr King will have to publicly explain himself if inflation moves any higher - as now seems certain. CPI last hit 3.1% in March 2007.

Economists had been pencilling in a rate cut to 4.75% from the Bank's Monetary Policy Committee (MPC) to help a slowing economy and ease pressure on borrowers next month, but the unexpected figures throw that into doubt.

Global Insight's chief UK economist Howard Archer called the data "another horrible surprise on the inflation front" after figures on Monday showed factory gate prices rising at their fastest rate since records began more than 20 years ago.

"The chances of a June interest rate cut are rapidly diminishing," Mr Archer said.

The downbeat view was reflected in London's FTSE 100 Index, which fell more than 1% following the figures.

Hard-pressed retailers such as Next and B&Q owner Kingfisher were among the casualties as prospects of easing pressure on consumers receded, while the British Retail Consortium also reported a second successive month of falling high street sales.

Other experts warned inflation could remain at elevated levels for months, as households braced themselves for another round of energy price hikes after heavy hints from British Gas parent Centrica on Monday.