THE Bank of England could be forced to keep interest rates constant next month after inflation reached its highest level for almost five years.

The underlying rate of inflation rose 0.3 per cent during February to 3 per cent, figures from the Office for National Statistics (ONS) showed.

The increase - higher than City forecasts - means inflation has now been above the Government's 2.5 per cent target for four months in a row. It was last higher in May 1998, when the figure reached 3.2 per cent.

The Bank's Monetary Policy Committee will meet early next month to decide whether or not rates should be cut.

Analysts believe there is scope for rates to be cut as low as three per cent before the year is out - but inflation rises are likely to postpone any downward movement.

Simon Rubinsohn, chief economist at stockbrokers Gerrard, said: "In the absence of a sharp fall in confidence related to the outbreak of hostilities in the Gulf, the MPC may be more inclined to sit on its collective hands at the April meeting. May stands out as a more appealing date because by then the war should be over, the Budget out the way and the Bank will have had the opportunity to reassess its view on both growth and inflation."

Headline inflation, which includes mortgage interest payments, mirrored the underlying rate by also rising 0.3 per cent to 3.2 per cent, the strongest rate since September 2000.

The ONS said the inflation increase was largely due to the post-January sales recovery in prices being steeper this year than last, particularly in women's clothing.

Petrol and oil inflation is also at its highest level since November 2000, while housing costs are at a two-year high, the ONS added.

HSBC economist John Butler said further rises would come: "We expect underlying inflation to peak close to 3.5 per cent in June, the point above which the Bank of England has to write a letter of explanation to the Chancellor."

That fact was not missed by economists who viewed it with a tinge of irony.

Mr Rubinsohn said: "Less than a year after Sir Edward George was nearly forced to pen a letter to the Chancellor explaining why inflation was breaching the lower part of the target band, one of his last acts as Governor of the Bank could be to justify a breach of the upper end of the inflation band.