Consumer prices rose 4.4 percent from a year earlier after a 4 percent increase in January, the Office for National Statistics said today in London. That’s the highest since October 2008 and compares with the central bank’s 2 percent target. The median forecast of 32 economists in a Bloomberg News survey was a reading of 4.2 percent. A separate report showed the budget deficit unexpectedly widened in February as government revenue fell.

Strengthening inflation has pushed three of the bank’s nine policy makers to argue for higher interest rates to tame price pressures. Still, the U.K.’s recovery may be hampered by the government’s budget squeeze, while officials must also weigh the potential impact on the global economy of the earthquake and tsunami in Japan.

“When you have a situation like Japan, when in doubt, do naught,” Alan Clarke, an economist at BNP Paribas in London, said before the report. “Assuming that situation calms down we’ll probably remain on track for an increase in May.”

The pound jumped as much as 0.2 percent against the dollar after the data were published. It traded at $1.6368 as of 9:33 a.m. in London, up 0.4 percent on the day. Bonds fell, with the yield on the 10-year gilt rising 7 basis points to 3.59 percent.

Energy Costs

The gain in inflation was led by clothing prices and the costs of housing services such as heating, the statistics office said. From the previous month, prices rose 0.7 percent.

So-called core inflation, which excludes costs of energy, alcohol, food and tobacco, rose an annual 3.4 percent after a 3 percent increase in January.

Retail-price inflation, a measure of the cost of living used in wage negotiations, accelerated to 5.5 percent in February from 5.1 percent the previous month. That’s the fastest since July 1991. On the month, prices by that measure increased 1 percent. Excluding mortgage costs, retail-price inflation was also 5.5 percent.

Crude oil prices have risen about 40 percent in the last six months and remained above $100 a barrel today. U.K. inflation was also boosted after Chancellor of the Exchequer George Osborne raised the sales-tax rate to 20 percent in January to tackle the record budget deficit. He told the BBC on March 20 he may delay a planned increase in fuel duty to help motorists cope with rising oil prices.

Budget Deficit

Britain’s budget deficit unexpectedly widened in February as government revenue fell, underlining the pressure on Osborne to stick to his fiscal tightening plan.

Net borrowing was 11.8 billion pounds ($19.3 billion), compared with 9.5 billion pounds a year earlier, the statistics office said. The median forecast of 13 economists in a Bloomberg survey was for a reading of 7.2 billion pounds. Government income fell 0.9 percent and spending rose 4.6 percent.

The Bank of England’s Monetary Policy Committee held its benchmark interest rate at a record low of 0.5 percent this month and its bond-purchase plan at 200 billion pounds. Minutes of the decision to be published tomorrow will show if other officials joined a push by Andrew Sentence, Martin Weale and Chief Economist Spencer Dale for an increase.

Rate Bets

Investors have pared bets on the timing of the next increase after the earthquake, tsunami and radiation leaks in Japan, the world’s third-largest economy. Forward contracts on the sterling overnight interbank average showed yesterday the first 25 basis-point increase will be in August. That compares with bets on March 9 for a June increase, according to the data, compiled by Tullett Prebon Plc.

Accelerating inflation may also damp the U.K. recovery by eroding consumers’ spending power. Markit Economics said yesterday a gauge of Britons’ finances fell 35.2 this month, the lowest since March, compared with 35.6 in February.

Associated British Foods Plc said Feb. 28 it’s seen a “noticeable slowing down” of U.K. demand at its Primark clothing stores this year.

“People are thinking they want to be more careful now,” Finance Director John Bason said.