With the announcement that annual inflation in the UK had risen dramatically to 4 per cent, the Bank of England is under pressure to increase the base rate from its record low level of 0.5 per cent.

The inflation rate hit a two-year high last month, primarily because of the hike in the rate of VAT to 20 per cent and the surge in the cost of petrol, and many experts argue that rising prices is putting the Bank of England under more pressure to push interest rates up from their low point, where they have remained since March 2009, especially as the Bank had targeted a rate of just 2 per cent for inflation.

The consumer price index (CPI) for inflation in the UK increased to 4 per cent last month from 3.7 per cent in December, although it did fall short of the 4.2 per cent that was expected by the market.

The Office for National Statistics (ONS) said that soaring oil prices, now well over USD100 per barrel, and recent increase in the level of the VAT sales tax were the main contributory factors for the high level.

With oil and food prices rising globally, Spain and China also recently announced their consumer prices had risen dramatically, with the former hitting 3 per cent and the latter hitting 4.9 per cent in January.

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