A rise in benchmark eurozone interest rates next month looked ever more likely yesterday when official annual inflation in the 15-nation bloc in May was revised up unexpectedly from 3.6% to a fresh record of 3.7%.

Benchmark annual UK consumer prices index inflation for May is meanwhile expected to come in today in excess of the 3.0% level revealed last month for April - thus forcing a letter from Bank of England Governor Mervyn King to Chancellor Alistair Darling explaining why it has gone more than one percentage point above the 2% target.

Mounting inflationary pressures have all but killed off hopes of another near-term cut in UK base rates from 5%, a level arrived at following quarter-point reductions in December, February, and April. Talk has turned instead to whether there might even be a rise in UK base rates.

This is a key week for the UK interest-rate outlook. As well as today's UK inflation data, tomorrow's publication of minutes of the Bank of England Monetary Policy Committee's June 4 and 5 meeting will reveal the tone of the discussions around its no-change decision two weeks ago and the split of the vote.

King will meanwhile give his set-piece Mansion House speech tomorrow night.

The British Bankers' Association's three-month London Interbank Offered Rate for sterling continued to climb yesterday, rising from its Friday fixing of 5.95375% to 5.955%. It is ever closer to exceeding the 5% base rate by a full percentage point - reflecting continued tightness in wholesale money markets and hardening interest-rate expectations.

Jean-Claude Trichet, president of the European Central Bank, wrongfooted financial markets on June 5 when he highlighted the possibility of a rise in eurozone interest rates from 4% when the ECB's governing council meets next on July 3.

Trichet talked about raising eurozone rates by "a small amount" - signalling a move to 4.25%.

Nout Wellink, governing council member, appeared yesterday to reiterate the likelihood of a July 3 rate rise but also to emphasise this would not necessarily be the start of a series of upward moves.

Dutch central bank chief Wellink, who was speaking on the sidelines of a conference on microfinance in Amsterdam, said: "The message has been clear enough but it's too early to speculate on the next half of the year."

Reinforcing expectations of a July 3 rate rise, he added: "Our main priority is stabilising inflation in the medium term."

European Commission spokeswoman Amelia Torres said of the upwardly-revised eurozone inflation number: "It is not a good figure. Inflation is our main economic concern."

Eurozone inflation was 3.3% in April, having been 3.6% in March. The May number, published yesterday by the European Union statistics office, was the highest since the eurozone came into being in 1997 with the launch of the single currency.

Jennifer McKeown, European economist at Capital Economics, saw "mixed news" in the final May eurozone inflation data. She noted the pick-up in May had been driven "almost entirely by higher food and energy inflation".

McKeown pointed out core inflation, excluding food, alcohol, tobacco, and energy, nudged up from 1.6% to 1.7% but was below the consensus forecast of 1.8%.

She said this suggested "there are still few signs of a pick-up in underlying price pressures in the region".

She added: "However, given strong price pressures further down the production line and a worrying pick-up in wages growth in Q1, the ECB will still be worried about higher inflation in future.

"A rate increase next month looks like a done deal, but the fact that core inflation remains subdued supports the view that the move will be a one-off."