UK inflation could push above the Government's target rate of 2.5 per cent, prompting fears of a further rate rise. Analysts fear that headline inflation could jump to 4 per cent this month, the highest since 1992.

A combination of fuel duty increases, council tax rises and a reduction in mortgage interest relief are expected to push inflation higher.

After two months of deadlock at the Bank of England's monetary policy committee evidence of worsening inflation could tip the balance in favour of a rate rise.

Mr Jim Power, chief economist at Bank or Ireland, said high inflation could support sterling in the short term. "But it will be temporary because most UK data is pointing to slowdown, and thus it will not force a rate rise."