Fears of another swift rise in UK interest rates heightened yesterday after benchmark inflation spiked unexpectedly to 3%, with Bank of England governor Mervyn King's hopes of avoiding a letter to Chancellor Gordon Brown now pinned partly on the January sales.

Economists predicted King's hairsbreadth escape from writing an open letter explaining why annual UK consumer prices index inflation had strayed more than one percentage point from the 2% target, laid down by the chancellor for the Bank's Monetary Policy Committee, could prove short-lived.

They forecast CPI could go to 3.1% or more this month if discounting in the January sales proved to be less this year than last.

Geoffrey Dicks, UK economist at Royal Bank of Scotland, said: "That leaves (the inflation number for) January in the frame for a letter - much will depend on the scale of the price cuts in the January sales."

The rise in annual CPI inflation from 2.7% in November to 3% in December, announced by National Statistics yesterday, was much worse than the increase to 2.8% forecast by the City.

However, the possibility of a rise to 3%, which like the November number was the highest since comparable records began in January 1997, had been talked about much by economists in the wake of last Thursday's surprise quarter-point rise in UK base rates to 5.25%. Some economists even believed it had gone to 3.1%, and King and his colleagues had raised rates to make his letter-writing easier.

King and his eight MPC colleagues saw the December inflation number before making their rate call last week.

Only one of 50 economists polled by news agency Reuters saw the rate rise coming, with the vast bulk of those who had forecast an increase expecting the Bank to hold off until it formulated its next quarterly inflation forecasts in February.

A rise in excise duty on petrol, which ironically was announced by the chancellor himself in his pre-Budget report last month, was a key factor in the latest jump in the annual CPI inflation rate.

However, it was far from just a fuel price story. Furniture prices showed their biggest month-on-month jump since comparable data began in January 1997 - leaping by 8.7% in December. Overall goods price inflation hit its highest annual rate since CPI records began.

A pre-announced rise in fuel bills from Scottish & Southern Energy will figure in the January inflation numbers, due next month, although the recent tumble in oil prices should exert a downward impact.

In the wake of yesterday's news of the 3% CPI inflation number for December, and a leap in the all-items retail prices index measure used in wage-setting from 3.9% in November to 4.4% last month, economists warned that the MPC could raise rates by a further quarter-point to 5.5% as early as next month.

Lucy O'Carroll, director of research at banking group HBOS's treasury services division, said: "Another increase in interest rates, to 5.5%, remains the best bet, and conceivably as soon as next month."

And she warned of a danger of yet more to come.

She said: "Though that (5.5%) could be the peak in rates, all (the) factors combined suggest that rate risks will remain skewed to the upside during the first half of this year."

O'Carroll added: "Although Bank Governor Mervyn King has not had to write a letter to the Chancellor today, he has come very close - and that will have been something of a shock to him. Last August, the Governor rated the chances of having to write a letter at "50-50". By November, he felt they were considerably less, given the anticipated downward impact on CPI inflation from lower oil prices and the stronger currency."

O'Carroll noted annual goods price inflation on the CPI measure, which had averaged only 0.3% in 2005, leapt from 1.8% in November to 2.3% in December. This was also the highest since records began in January 1997.

Even some of those who do not expect a further rise in interest rates still see a significant risk of an increase, with last week's upward move in the cost of borrowing having fuelled particular uncertainty about where things go from here.

John Butler, chief European economist at banking group HSBC, believes growth in the labour force arising from immigration will have a greater downward influence on wage settlements than the high RPI number will have in the other direction.

He said: "From here, it is quite simple. If pay accelerates, the bank will hike again. If pay growth stays fairly subdued, as we suspect, then rates have peaked." However, he added: "I think last week's (interest rate) hike creates a lot more uncertainty and, certainly, the Bank of England could still have a tightening bias."

Asked about talk of a rate rise in February, Butler replied: "It is not out of the question. The fact we still haven't got a full explanation (of last week's rate rise) means anything is possible."

Some clarification should come next Wednesday with publication of minutes of the meeting at which rates were raised.

The RPI number is at its highest since December 1991 and could alarm MPC members, particularly given most annual pay rises come in the January to April period.

Committee members have voiced fears about the spike in consumer price inflation, caused in large measure by surging energy prices, feeding through to higher wage settlements and causing a potentially damaging upward spiral. The recent tumble in oil prices and wholesale energy prices is expected eventually to feed through to lower petrol prices and to stop the upward surge of household electricity and gas bills, thus reducing CPI inflation, but the big question is whether this fall comes hard or fast enough to prevent further interest rate rises.

King would have found himself having to write to the chancellor had the previous 2.5% target for the former benchmark measure, the retail prices index excluding mortgage interest payments, still been in place. Annual inflation on this RPIX measure surged from 3.4% in November to 3.8% last month- more than one percentage point above the old target and its highest since October 1992.

On the CPI measure, the annual rate of electricity, gas and other fuel price inflation picked up to 30.2% in December - its highest on record - from 30% in November.