Inflation increased to hit the Bank of England’s target of 2 per cent in April, boosted by more expensive air travel and sharply higher utility bills.

According to official figures released today by National Statistics, the housing, water, electricity, gas and other fuels component of consumer price inflation posted its largest annual rate of growth since records began in 1997.

Consumer prices increased by 0.6 per cent, the biggest monthly rise in nearly five years.

After an unexpectedly low figure of 1.8 per cent in March, the latest CPI data will reinforce expectations that the next move in interest rates will be up, with consumers already feeling the pinch from higher household bills.

However, a benign reading for core inflation – which strips out fuel and other volatile factors – suggested that the Bank could stick to its wait-and-see approach in the medium term and hold interest rates at 4.5 per cent, economists said.

Core inflation remained flat at just 1.3 per cent in April, well below the Bank’s headline 2 per cent target.

Gavin Redknap, an economist at Standard Chartered Bank, said: "The data won’t ease the concerns of the hawks at the Bank, but given the strength of the oil-related data, the relatively well-behaved overall figure should act as a calming influence on markets, which were getting away with themselves in pricing in as much as 50 basis points of tightening by year-end.

"While we no longer see rate cuts coming this year, we still expect weaker growth globally to prevent further rate hikes in this cycle."

Howard Archer at Global Insight said: "For the time being at least strong competitive pressures on the high street and through the supply chain are largely containing any second-round inflationary effects from high oil and energy prices.

"Overall, this is not too worrisome a report for the Bank of England, and we believe that interest rates are unlikely to rise until 2007."

However, economists have noted that the Bank is now on high alert for danger signs that high energy prices are stoking inflation.

Some still believe that the hawks on the Bank’s rate-setting Monetary Policy Committee could force through a hike in the cost of borrowing this year if further signs emerge that high oil prices are having significant secondary effects.

Thushani Gajasinghe, of the Centre for Economic and Business Research, said: "With stubbornly high oil prices, which are feeding through to rising costs for the consumer, the Bank will need to keep a close eye on inflation.

"If inflation creeps too far above the 2 per cent target the case for a rate rise at the end of this year will strengthen."

This month’s quarterly Inflation Report from the Bank singled out energy prices as an area of concern and predicted that inflation would spike past the Bank’s target level if rates were not increased.

However, it struck a more dovish tone than many in the City had expected, prompting analysts to trim back expectations for at least one and possibly two interest rate rises in 2006.

In April, the greatest inflationary pressure came from transport, as air fares rose after falling during the same period a year ago, ONS said. The increase also reflected the timing of Easter, which fell in April this year and March last year.

Downward pressure on inflation came from cheaper year-on-year prices at restaurants and hotels.

Retail price inflation (RPI), on which most pay deals are based, picked up more than expected to 2.6 per cent – its highest level in seven months.

All eyes will now be on tomorrow's release of the minutes of the last Bank meeting on rates for hints on how seriously a rate rise was discussed.

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