Britain's inflation rate stayed above its target for the fifth month in a row in March, but analysts said that was unlikely to prevent the Bank of England (BoE) from cutting interest rates again.
The Office for National Statistics said retail prices excluding the cost of home loans rose 0.4 per cent on the month in March, keeping the annual rate of RPIX inflation steady at 3 per cent, as expected. This is its highest level since May 1998.
But the BoE has predicted inflation could rise even further above its 2.5 per cent target in the coming months and has said a short-term blip will not necessarily stand in the way of another reduction in borrowing costs.
Interest rate futures nudged higher as dealers who had reckoned that inflation could accelerate in March bet that there was now even less to hold the BoE back.
"The inflation outlook is unlikely to be seen by the Monetary Policy Committee as an impediment to a rate cut, if the outlook for activity has deteriorated sufficiently," said Mr Alan Castle, UK economist at Lehman Brothers.
Recent economic numbers have certainly been weak. The British Retail Consortium said sales fell 0.6 per cent on the year in March, suggesting demand is deteriorating fast even after allowing for distortions caused by a late Easter.
Consumers are also being hit this month for the first time by rises in income tax announced last year while the housing market which has been soaring in recent years finally appears to be easing.