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Britain's rate of annual inflation has risen to an 11-year high of three per cent, official figures have today revealed.

The 0.3 percentage point rise in consumer price index (CPI) inflation between November and December was fuelled by rising transport and recreational costs, the Office for National Statistics (ONS) said.

Retail price index (RPI) inflation, which includes mortgage interest payments, meanwhile rose to 4.4 per cent from November's rate of 3.9 per cent.

The rises come hot on the heels of this month's quarter of a per cent interest rate increase to 5.25 per cent from the Bank of England.

If inflation had risen above three per cent the Bank's governor Mervyn King would have been required to send a letter to chancellor Gordon Brown explaining why the cost of living in the UK was more than one per cent above the government's target of two per cent.

Mr King has not been obliged to send such a letter since the Bank gained independence ten years ago.

The ONS explained that while the price of clothing and footwear fell over the last year, petrol, furniture, computer games and DVDs all contributed to pushing inflation to three per cent.

Responding to today's developments, Centre for Economics and Business Research economist Jonathan Said commented: "The markets will react to the news by pricing in another rate rise, which now seems an easy bet. The pound will edge closer to $2, while bond yields will rise. Equities may still gain on the day, given the health of the financial markets, but may lose a fair bit of steam."

And Ian Kernohan of Royal London Asset Management added: "Today's inflation data showed CPI close to, but not within letter writing territory. This helps to explain why the monetary policy committee moved last week as, although CPI did not rise above three per cent in December, it was significantly higher than they expected at the time of the November inflation report."