Benchmark UK inflation surged from 2.5% to 3.0% in April - a whisker away from the 3.1% level at which Bank of England Governor Mervyn King would have to write an explanatory letter to Chancellor Alistair Darling, and way ahead of the City's forecast of 2.6%.

The pound, which would normally have been expected to rise on the back of such high inflation numbers as hopes of further cuts in UK interest rates were scaled back, perhaps tellingly fell instead. This appeared to reflect wider worries about the UK's worsening economic predicament, with prices soaring, growth slowing fast, and the housing market looking in ever-poorer shape.

The Bank of England's latest quarterly inflation report today is likely to be fascinating - providing an insight into just what King and his eight Monetary Policy Committee colleagues think of the developing situation from an interest-rate perspective.

The Office for National Statistics cited a rise in household gas and electricity bills in April, which fell in the same month last year, as a key factor in the leap in annual consumer prices index inflation from 2.5% in March to 3.0% last month. This spike in CPI inflation was the biggest monthly movement since July 2002.

With oil prices hitting all-time highs with great frequency, food costs jumping, and signs of further rises in household fuel bills, there is an ever-increasing chance that King will soon find himself with some explaining to do through the official mechanism.

King has to explain himself to Darling if annual CPI inflation strays more than one percentage point in either direction from the 2% target set for the Bank of England by the Treasury.

Most economists have been expecting the MPC to cut UK base rates by a further quarter-point in June, from their current level of 5%. However, official figures on Monday showing soaring factory gate prices and surging input costs for producers, and yesterday's unexpected leap in CPI inflation, leave the MPC with an entirely unenviable task in deciding what to do next.

The MPC has cut base rates by a quarter-point three times this cycle, in December, February and April. The committee saw the CPI figures before voting to stand pat at its meeting last Thursday.

Food and non-alcoholic beverages added 0.12 percentage points to the annual CPI inflation rate between March and April, with prices rising by more last month than a year earlier and upward effects from meat, fruit, some breads and cereals, and fish. The ONS said food and non-alcoholic drink prices were up 1.3% month-on-month, and were 6.6% higher than last April.

Alcohol and tobacco added 0.07 percentage points to annual CPI inflation between March and April, in large measure because of a greater increase in excise duty in this year's Budget. Furniture and household goods prices were 1.4% higher this April than last, a significant acceleration from the year-on-year increase of 0.5% in March. Recreation and culture also added 0.07 percentage points to the annual CPI rate, with the price of computer games rising last month but falling in April 2007. Computer games have remained in demand in spite of deteriorating conditions for consumers.

Significant downward effects on the annual CPI rate between March and April came from a fall in air fares, particularly for European flights, and a lesser rise in petrol prices this April. The average price of petrol rose by 1.9p per litre last month, having jumped by 3.4p in April 2007.

Clothing and footwear exerted a further large downward effect on annual CPI last month. Clothing prices fell last month but rose in April 2007.

Paul Dales, UK economist at consultancy Capital Economics, said of yesterday's inflation data: "This could be the first sign that retailers are starting to pass on the rise in costs seen towards the start of the inflation pipeline over the last year. Looking ahead, it now looks likely that CPI inflation will rise to 3.1% in May, triggering a letter from the Bank Governor to the Chancellor. And it could yet rise some way further thereafter.

"Eventually, and once energy effects fade, we think that the consumer slowdown will force retailers to absorb higher costs in their margins, resulting in a sharp fall in inflation next year. This will allow the MPC to cut rates sharply. But in the meantime rates will continue to fall rather slowly - June no longer looks like such a done deal - exacerbating the economic slowdown."

Liz Cameron, chief executive of Scottish Chambers of Commerce, said: "Our own economic intelligence ... has shown for some time now that businesses have been facing rising raw material costs, but until the second half of 2007 they had been able to absorb much of this. However, it has become increasingly apparent that pressure on margins has become so great that these rising costs are beginning to be passed on to customers and ultimately to consumers."

Simon Ward, chief economist at New Star Asset Management, said: "New Star's previous forecast was that inflation would reach the 3.1% letter-writing level in July, peaking at 3.5% in September and remaining above 3% until February 2009. This was at the top end of economists' expectations but now looks too low. A 4% peak now looks plausible if retail energy prices are hiked by a further 20% later this year, as widely expected."

He added: "The view that the (MPC) should continue to cut interest rates because a weakening economy will ensure inflation is back below target in two years' time is questionable, to say the least ... A near-term cut now looks extremely unlikely, barring recessionary signals from activity data."

Sterling was last night down nearly one-and-a-half cents on its close against the dollar in London on Monday, trading below $1.9475. The euro was up more than 0.3p against the pound, trading around 79.53p.

The Council of Mortgage Lenders said yesterday that the number of loans approved by its members for house purchase in the UK had fallen further to 46,500 in March - 48% lower than in the same month last year. Its figures chime with Bank of England numbers showing plummeting mortgage approvals.