The Bank of England governor, Mervyn King, has had to write an unprecedented letter to the government after UK consumer price inflation jumped to 3.1% in March.
Mervyn King has had to explain to the government why inflation is high
Mr King had to write the letter because inflation was more than one percentage point above the government's inflation target of 2%.
Following the release of the inflation figures, the UK pound broke through the $2 level for the first time since 1992 as investors bet the interest rates would have to rise.
Analysts, politicians and business leaders have been giving their reactions to the inflation news and the threat of higher rates.
SHADOW CHANCELLOR GEORGE OSBORNE
Today's inflation figures are worrying news for the British economy, but I'm confident that the Bank of England will take the steps necessary to bring inflation under control.
Economic stability is the number one priority. However, this inflation rise is also terrible news for Gordon Brown on the day that he faces his first ever no-confidence motion in the House of Commons.
Whether it is the destruction of the pensions system or the broader performance of the economy, Gordon Brown's reputation for economic competence is unravelling before our eyes.
LIBERAL DEMOCRAT TREASURY SPOKESMAN VINCE CABLE
This news gives the lie to the claim that the Government has permanently achieved a nirvana of steady growth without inflation.
This high inflation is likely to cause further interest rate rises which will cause misery for thousands of people in severe debt who have borrowed up to the hilt to secure a mortgage.
We have seen rapidly-growing house repossessions and insolvencies, as inflation and interest rates rise. Debt servicing problems will only get worse.
HOWARD ARCHER, GLOBAL INSIGHT
This is a thoroughly nasty set of data that essentially guarantees that the Bank of England will raise interest rates by a further 25 basis points to 5.50% in May.
Furthermore, there is a markedly increased possibility that interest rates will rise further still further out.
Although some of the spike up in inflation in March can be attributed to volatile items including a renewed firming in oil prices and higher food and milk prices, this cannot be used to explain away the whole jump.
PHILIP SHAW, INVESTEC
Today's inflation figures make an interest rate rise a certainty, along with the possibility of another rate rise beyond that.
PETER SPENCER, ADVISER TO ERNST & YOUNG ITEM CLUB
It is clear that interest rates will be raised again to 5.5% after the next Bank of England meeting on 3 May, putting them 1% above their level in early August (2006).
That should be enough for now.
With deep cuts in gas and electricity prices phased in over the next three months, the consumer price inflation figure should fall back below the 3% upper limit towards the 2% target.
The strength of the pound against the dollar will also help subdue inflation.
JONATHAN SAID, CEBR
There appears to be more inflation in the system that is demand-led than what we had previously expected, allowing retailers and manufacturers to restore their margins.
This opens the possibility of rates rising beyond 5.5% after May towards the 6% level.
However, the fact that the Bank kept rates on hold in April probably means that their medium term inflation expectation has remained unchanged.
Nevertheless, increased upside inflation risks are emerging, so that there is a larger chance that inflation will struggle to get back to target as soon as we had expected.
STEVE RADLEY, EEF
So long as export markets remain strong, the main effect of a $2 pound will be on manufacturers' profit margins rather than on order books.
However, if a further slide in the dollar was driven by a significant weakening in the US economy, we would expect to see far more manufacturers feeling the pain.
We would urge the Bank to move cautiously on interest rates and take into account the impact of its measures on the exchange rate.