Inflation jumps to 3.4%

Inflation rose to a higher-than-expected 3.4% in March, according to the Office for National Statistics.

The Consumer Prices Index (CPI), the Government's preferred measure of inflation, increased from 3% in February.

The rise is greater than analysts had expected, with most predicting annual inflation would hit 3.2%.

An alternative inflation measure, the Retail Prices Index (RPI) jumped sharply, up from 3.7% to 4.4%.

A rise in CPI could lead to the Bank of England increasing its base rate, while the RPI jump may lead to higher pay increases during wage negotiations.

Schroders european economist Azad Zangana this morning's shock only marginally increases the likelihood of interest rates being raised sooner than anticipated.

"We expect the Bank of England to treat this as a one-off spike and focus on the broader picture which is one of slowing inflation over 2010," Zangana says.

"Our rates view is unchanged: Bank of England to keep its policy rate on hold until the fourth quarter of this year.

"News of higher inflation may come as a blow for Gordon Brown's efforts for re-election. Higher inflation over the first quarter of this year may mean that GDP growth in real terms released later this week may disappoint."