Economists have put the chances of 6pc interest rates this year at one in three, after fresh signs emerged that the Bank of England has lost control of prices and the Organisation for Economic Co-operation and Development (OECD) said Britain has the worst inflation problem in Western Europe.
The CBI said the number of manufacturers intending to raise prices in the coming months had hit the highest level in 12 years. The news is vitally important since the Bank said last week that if this specific measure continued to rise it would imply that it might have to raise borrowing costs again.
The CBI's Industrial Trends survey showed that 32pc of manufacturers expect product prices to rise, compared with 8pc thinking that they will fall. The resulting rounded balance of +25pc was the highest since March 1995.
It came as oil prices hit a nine-month high of $72 a barrel, fuelling fears that higher petrol prices and transport costs could generate further jumps in inflation.
Brent crude was up $1.10 at $71.70 a barrel in late trading, lifted by concerns about the potential for military action against Iran, and strikes by state oil workers in Nigeria.
Howard Archer, chief UK and European economist at Global Insight, said: "The CBI survey adds to the pressure on the Bank of England to lift interest rates by a further 25 basis points to 5.75pc sooner rather than later, and a back-to-back [increase] in June is currently looking like a real possibility. Furthermore, there is an ever-growing danger that interest rates will reach 6pc before the end of the year."
A poll of City economists carried out by Reuters showed that there is now a 75pc chance rates will increase to 5.75pc this year, and a 30pc chance they will hit 6pc. Traders are already expecting an increase to 6pc, with a further half a percentage point rise already priced in on the money markets.
In its twice-yearly look at the world economy, the OECD said the UK would this year have the highest inflation in Western Europe, and most of the developed world.
It said that, at an average of 2.4pc this year, the Consumer Price Index was far above the average in rich countries, adding: "There may even be a case for additional tightening in the United Kingdom, should inflationary pressures persist."
It cut its 2008 growth forecast for the UK from 2.8pc to 2.5pc, and fired a warning at outgoing Chancellor Gordon Brown, criticising him for building up a bigger budget deficit than any other major European country this year.
George Osborne, the shadow chancellor, said: "It's official: Gordon Brown is leaving the Treasury with the public finances in the worst state in Western Europe. You have to be truly incompetent to combine the highest taxes in our history with a budget deficit higher even than Italy's."
Source: The Telegraph