BRITISH INFLATION shot up even faster than expected last month, official data showed yesterday. Delphine Straussreports.

Jumps in the cost of food and petrol took the annual rate to nearly double the Bank of England's target and left little prospect of near-term cuts in interest rates.

Inflation on the consumer prices index (CPI) - which the central bank targets - rose from 3.3 per cent in May to 3.8 per cent in June, outstripping expectations of a rise to 3.6 per cent. The Office for National Statistics (ONS) said it was the highest monthly increase since the index began in 1996.

Mervyn King, the bank's governor, had already warned that record oil prices were likely to drive inflation above 4 per cent, but the latest data suggest that spike will come sooner, and be even more pronounced than expected.

Michael Saunders, an economist at bank Citi, said: "The monetary policy committee [is] unlikely to cut near-term with such high inflation, even though the UK may be slipping into recession.

Big increases in food and fuel costs made the biggest contribution to the rise in annual inflation. Higher meat, fruit and cereal prices helped send food inflation up to 9.5 per cent, from May's annual rate of 7.8 per cent.

The ONS said the average price of petrol had risen 5.3 pence a litre to 117.6 pence between May and June, while diesel prices had risen 7.1 pence per litre. But the pick-up in inflation is not confined to areas most directly affected by soaring oil prices. The CPI reading for services inflation rose from 3.8 per cent to 3.9 per cent, and "core" inflation - excluding food, energy and tobacco - edged up from 1.5 per cent to 1.6 per cent.

"There must also be a concern that the sharp rise in producers' costs . . . is starting to feed into the high street," said Jonathan Loynes from London research consultancy Capital Economics. Inflation on the broader retail prices index measure rose from 4.3 per cent to 4.6 per cent.

Separately, German investor confidence has plunged to its weakest for almost 17 years, highlighting fears of a significant economic slowdown ahead, according to a survey. The Mannheim-based ZEW institute reported its German economic sentiment indicator had dropped from minus 52.4 in June to minus 63.9 this month - the lowest level since the survey began in December 1991.

Problems in the US mortgage market had "reinforced worries of financial market experts about the economic development of Germany," said Wolfgang Franz of ZEW. - (Financial Times service)