LONDON, Jan 16: Inflation in the UK has soared to the highest level for 11 years, sparking fears of a further interest rate increase as soon as next month. The Consumer Price Index jumped from 2.7pc to 3pc in December.

The Retail Price Index -- a more comprehensive measure of the average cost of living -- jumped to 4.4 per cent, the highest level since 1991 when interest rates were above 11 per cent.

This figure will be of particular concern to the Bank of England since it is the one used as a yardstick by wage bargainers.

As a result UK rates should be heading to 5.5 per cent in the near term and may go higher given the current belligerent mood of the Bank of England.

The largest upward effect on the CPI annual rate came from transport costs. Prices of fuels and lubricants rose this year, in large part reflecting the increase in fuel duty which came into effect on Dec 6.

The average price of petrol increased by 2.0p per litre between November and December this year, compared with a fall of 3.0p a year ago.

Another large upward contribution came from furniture and household goods. Prices of furniture showed their largest month-on-month increase since the start of the official series in January 1997 as retailers raised their prices across a broad range of items prior to the usual January sales period.

A further large upward effect came from recreation and culture, mainly due to changes in the price of computer games, non-fiction books and DVDs.

Large downward contributions came from changes in the price of vegetables and from clothing and footwear, with prices of women’s outerwear falling by more than a year ago due to widespread special offers, particularly on jackets, dresses and trousers.

As an internationally comparable measure of inflation, the CPI shows that the UK inflation rate is above average for the European Union (EU) as a whole. The provisional inflation rate for the EU 25 in November was 2.1 per cent, compared with the UK rate of 2.7 per cent for the corresponding period.