MORE HOUSE PRICE GLOOM
Like everywhere else around the world, food and fuel prices were the main reason for the inflation surge.
The European Central Bank has already raised interest rates this month to combat the threat of rising commodity prices but the Bank is also having to contend with the prospect of a housing market crash.
The Royal Institution of Chartered Surveyors' monthly survey of house prices for June pointed to further falls in house prices in the months ahead, with sentiment in the property market near record lows.
Retailers are also suffering. The British Retail Consortium said May's hot weather-inspired jump in spending did not last and that retail sales fell last month versus a year ago. Furniture sales fell at their fastest rate in more than 3 years.
Photographic retailer Jessops added to the gloom as it warned its full-year loss was widening because of deteriorating trading conditions.
"While the economy continues to show signs of unravelling fast, the Bank is most likely to keep rates on hold in the near term until some signs of ameliorating inflation pressures emerge later this year," said Matthew Sharratt, economist at Bank of America.
The Bank's Sentance noted there was no sign yet of pay settlements picking up because of higher inflation but RPI inflation, which forms the basis for most wage deals, jumped to 4.6 percent in June, the highest since March 2007.
The Bank will be watching Wednesday's labour market data carefully for any signs that average earnings are on the rise.
The government has said it is committed to keeping a tight lid on pay despite the squeeze on consumer incomes.
"What we want to avoid is any suggestion of any return to the sort of wage price spirals that we would have seen in previous decades when faced by a global inflation shock," Prime Minister Gordon Brown's official spokesman said on Tuesday.
