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Last Updated: Tuesday, 16 January 2007, 05:04 GMT
Inflation rate 'at 11-year high'
How rates have moved over the past year
New inflation figures are expected to show the rate of price rises has reached an 11-year high.

A week after householders were hit by another rise in interest rates, some City analysts predict the inflation rate for December will be close to 3%.

The target rate is 2% - but if it goes above 3%, the Bank's governor Mervyn King would have to write a letter of explanation to the government.

This would be for the first time since the Bank gained independence in 1997.

'Upward risk'

The latest inflation rate - or Consumer Prices Index for December as it is formally called - was known to the Bank of England before it made the decision last Thursday to raise interest rates to 5.25%.

Inflation reached a 10-year high of 2.7% in November - the seventh consecutive month it was above the 2% target.

Early predictions suggested it could nudge up to at least 2.8% in December.

Malcolm Barr, of JP Morgan Chase Bank, is expecting the figure to come in at 3%, along with ING economist, James Knightley.

Investec economist, Philip Shaw, who initially, predicted a more modest rise to 2.8% before the base rate increase has since admitted there is an "upward risk" on this figure, possibly to as high as 3.1%.

He said: "It is fairly easy to see it going up to 2.9% or 3%, but 3.1% is also possible, although you'd need a huge surge in food prices in particular to get that sort of jump."

If the rate does exceed the 3% mark, Mr King would publish the explanatory open letter to Chancellor Gordon Brown at 1030 GMT.

He would be required to state what action was being taken to move the rate back in line with the 2% goal.

Mr King would also need to predict how long it would take to return inflation to target and explain how the Bank of England was meeting the government's monetary policy objectives.

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