The inflation rate picked up more than expected in August, boosted by strong rises in toys and computer games and reinforcing expectations that interest rates will go up again this year.
The Office for National Statistics said on Tuesday that consumer prices rose by 0.4 percent last month, taking the annual rate up to 2.5 percent the same as June and the joint highest since the ruling Labour party won power in 1997.
The data was above analysts' forecasts for a rate of 2.4 percent and bolstered expectations the Bank of England will hike rates again before the end of the year.
The news lifted the pound by half a cent against the dollar.
It is quite clear that UK inflation tendencies are moving in the wrong direction for the Bank of England, leaving the bias in UK rate policy definitely pointing higher, said David Brown, economist at Bear Stearns.
Inflation has been above the BoE's 2.0 percent target for the last four months and the Bank has indicated it expects it to rise even further in coming months as higher university tuition fees and utility bills bite.
BoE Governor Mervyn King said in August there was a 50/50 chance inflation would exceed 3.0 percent within six months, which would force him to write an explanatory letter to the government.
The ONS said the biggest upward impact on CPI in August came from recreation and culture, particularly computer games and toys, which outweighed a downward effect from easing petrol prices and air fares.
Retail price inflation (RPI) on which most pay deals are based picked up in line with expectations to 3.4 percent. That was the highest since December 2004.