Inflation expectations have risen to their highest level since the Bank of England began recording the public's assessment of price pressures in Britain's economy.

The sharp change in the public's outlook on inflation recorded by the Bank’s quarterly survey for February will deal a blow to prospects of a cut in interest rates in the short term.

In its updated Inflation Attitudes report, published this morning, the Bank said people's median expectations for the rate of inflation for the coming year were 2.7 per cent compared with 2.2 per cent in November.

The figure for February, the highest estimate since the survey started in 1999, edged up from an original figure of 2.6 per cent released by the Bank last month.

The public's expectations for inflation, regarded by economists as a key driving force behind actual rates of inflation, are far ahead of the 2 per cent figure the Bank targets on the consumer price index on a two-year horizon.

The Bank's expectations survey does not make mention of the Consumer Price Index (CPI) measure of inflation, which strips out living costs such as mortgage repayments. But it is still likely that the historically high figures will translate into a hawkish stance from the Bank's Monetary Policy Committee (MPC), which sets interest rates.

John Butler, the HSBC economist, said: "The issue is that the MPC are currently very sensitive, like most central banks, about rising inflation expectations and now their own survey says inflation expectations are rising. That at face value is hawkish news."

Official figures due on Thursday are expected to show that the recent surge in wholesale gas prices has fed through into inflation. Analysts expect the CPI index to rise to 2.1 per cent in March from the year before, ahead of February’s equivalent rate of 2 per cent.

The MPC was privy to the preliminary reading of this survey at their March meeting. The sharp increase in public inflation expectations was directly referred to in the minutes.

The committee said: "There had been some tentative signs that consumers’ inflation expectations may have shifted up in February," a movement that was seen as a likely reaction to recently announced rises in utility prices.

Earlier this month, the Bank held interest rates at 4.5 per cent for the eighth month running. Minutes to the rate-setting MPC meeting are published tomorrow.

Outside of food and energy, however, seasonally adjusted finished goods prices showed little movement. The core producer price index increased 0.1 per cent in March, the smallest gain since November and a hopeful sign that higher energy prices have not led to a more widespread inflation.

Economists had expected PPI to rise 0.4 per cent and the core to rise 0.2 per cent.

The Federal Reserve, which sets US interest rates, will get a better picture of inflationary trends tomorrow, when the Labor Department reports on the consumer price index for March.

Economists expect a 0.4 per cent gain in the headline inflation rate, with a more moderate 0.2 per cent gain in the core CPI.

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