The UK public�s expectation of benchmark inflation over the coming year rocketed to a fresh record high of 3.6% in March, from 3.1% in February, according to a survey yesterday which will likely unnerve the Bank of England as it deliberates over interest rate cuts.

The UK public's expectation of benchmark inflation over the coming year rocketed to a fresh record high of 3.6% in March, from 3.1% in February, according to a survey yesterday which will likely unnerve the Bank of England as it deliberates over interest rate cuts.

The 3.6% figure is the highest since banking giant Citigroup and pollster YouGov began their inflation expectations survey in 2005.

Rising inflation expectations have been highlighted by the Bank's Monetary Policy Committee as a key barrier to further cuts in UK interest rates, which are otherwise required to mitigate the extent of the ongoing economic slowdown which has its roots in massive US sub-prime mortgage default.

MPC members are worried that, if recent high inflation leads to a more permanent change in the public's expectations of future inflation, this could cause a damaging price-wage spiral.

Benchmark annual UK consumer prices index inflation stood at 2.5%, well above the Bank's 2% target, in February.

The MPC has cut UK base rates by a quarter-point twice so far this cycle, on December 6 and February 7, to take them to 5.25%.

Many economists believe the MPC will cut again next month, given the renewed tightening of wholesale credit markets and the likely dampening impact on economic activity as banks reduce further the availability of credit and increase the margins they are charging on this to rebuild their balance sheets.

However, the inflation expectations survey may give some MPC members pause for thought.

l National Statistics said yesterday that UK business investment actually rose 1.8% in the fourth quarter of last year, rather than falling by 0.5% as estimated previously.