British inflation surged to a 28-month high of 4.4 per cent last month, reviving speculation that the Bank of England will not wait much longer to raise interest rates.

Data today also showed government borrowing recorded its worst February on record, providing a grim backdrop as finance minister George Osborne puts the final touches to tomorrow's 2011 Budget.

Sterling strengthened on the inflation figures, which some analysts said brought a May rise in interest rates back into play as BoE policymakers try to wrestle price growth back to the bank's 2 per cent target, a goal they have missed for most of the last three years.

"They will have to push up their inflation forecasts in the next quarterly report (in May) and that will be ammunition for the hawks," said BNP Paribas economist Alan Clarke. "We think that a rate rise will come in May."

The Office for National Statistics said consumer price inflation rose to 4.4 per cent in February from 4.0 in January, higher than the 4.2 per cent forecast by economists. Housing costs, domestic heating bills and clothing prices were largely to blame.

Retail price inflation, a broader measures which is used as a starting point for many wage negotiations, rose to 5.5 per cent from 5.1 per cent, its highest since July 1991.

Six of the BoE's nine-member Monetary Policy Committee voted to keep rates on hold in February, while three voted for a rise from a record-low 0.5 per cent. A voting breakdown for the BoE's March meeting is published tomorrow.

Those MPC members in favour of keeping rates steady last month saw inflation falling sharply next year without big rate rises, and were concerned an unexpected sharp fall in fourth-quarter output may presage an extended period of below-par growth.

In some upbeat news for growth, the CBI business lobby reported that factory orders rose at their fastest pace since March 2008. However, prices rose at their fastest rate since July 2008.

Short sterling interest rate futures markedly extended losses after the inflation data and now price in roughly a 50 per cent chance of a May rate rise.

Today's data also provided bad news for Britain's finance ministry. Public sector net borrowing totalled £10.28 billion in February, up from £8.105 billion for the same month in 2010 and well above economists' median forecasts of £8 billion.

"The deficit is much higher than expected, which goes against the trend up to date. Revenues are markedly softer whereas they have been overshooting the government's forecast in earlier months," said Citi economist Michael Saunders.

The government's preferred measure, PSNB excluding financial sector interventions, rose to £11.771 billion, taking its total for the year to date, to £123 billion compared to £137 billion at the same point in the 2009/10 fiscal year.

Both measures were the highest for a month of February since records began in 1993.

Only one month now remains of the 2010/11 fiscal year, in which the government has previously said it expects to borrow £148.5 billion - equivalent to 10.0 per cent of GDP - down from £156.5 billion in the 2009/10 fiscal year.

"Barring a disaster in March, this still points to an undershoot of the full-year forecast ... but that undershoot may be closer to £5 billion than the £10-15 billion previously hoped," said Jonathan Loynes, economist at Capital Economics.

The government plans to virtually eliminate the budget deficit over the next four years, a goal its opponents say risks driving Britain back into recession.

Reuters