Inflation shot up to nearly double the central bank's 2 percent target in June, intensifying doubts about whether the Bank of England can cut interest rates to prevent a sharp economic slowdown.
The news that consumer price inflation leapt more than expected to 3.8 percent in June from 3.3 percent in May accompanied more survey evidence that the housing market is in real trouble and consumers are cutting their spending as a result.
"The UK economy probably is slipping into recession or about to. Even so, it seems very unlikely the Monetary Policy Committee will cut rates near-term given the extent to which inflation is surging," said Michael Saunders of Citigroup.
"The MPC would probably hike rates if the economy were not anyway heading into a sharp slowdown or recession. They may yet do so."
Inflation is now running at the fastest pace the Bank of England has had to deal with since it became independent in 1997.
Finance Minister Alistair Darling urged people not to push for higher wages, saying it would only lead to a debilitating wage-price spiral.
"We cannot allow inflationary wage increases because that would mean that everyone, especially people on lower incomes, would suffer," he said.
Speaking just before the data came out, Bank policymaker Andrew Sentance said the risk of an economic slowdown needed to be balanced against the risk that inflation becomes embedded because people come to expect sharp price rises.
"This creates bigger upside risks for medium term inflation, and increases the possibility that a more pronounced or prolonged slowdown in the real economy will eventually be needed to bring inflation back to target," he said.
