LONDON (AP):

Higher prices for gas and electricity helped drive Britain's consumer price-inflation rate to 4.7 per cent in August, up from 4.4 per cent in July, the Office for National Statistics said yesterday. The Bank of England's chief said he believed that inflation may soon peak at five per cent.

Higher prices for food, non-alcoholic beverages and personal- care products also drove the index higher in August, the agency said.

Two per cent

Britain's official inflation target of two per cent per year is keyed to the consumer price index.

Retail prices, excluding mortgage interest, fell to 5.2 per cent in August, down a tenth of a point from July, the agency said. Retail prices, including mortgage interest payments, dropped from five per cent in July to 4.8 percent in August.

Bank of England Governor Mervyn King said, in a letter to Treasury chief Alistair Darling, that the bank's Monetary Police Committee "now expects inflation to peak soon at around five per cent," a higher peak than had been forecast in June.

"This is mainly because import prices are likely to be stronger than anticipated three months ago, although the recent falls in oil prices will act to moderate the peak in inflation," King wrote.

King is obliged to write a letter each quarter when the monthly rate exceeds the two per cent target. The bank released a copy of the letter on Tuesday.

In an effort to roll back inflation, the Bank of England has kept base interest rates at five per cent since April, despite signs that Britain's economy is heading toward a recession.

"This latest inflation figure, coupled with the recent moves in energy prices, could be an indication of inflation nearing its peak," said Richard Hunter, analyst at Hargreaves Lansdown Stock-brokers. "This, in turn, could lead to a loosening of monetary policy by way of an interest rate cut in the United Kingdom, at a time when the markets are eagerly seeking signs of recovery."

Market turmoil

Howard Archer, chief European economist at Global Insight, said a drop in base in the base rate may be possible sometime next year.

"Much will depend on just how deep and extended the current financial market turmoil, and what impact it has on the wider economy," Archer said.

"The Bank of England sees tight credit conditions as a particularly serious risk to economic activity and it is highly possible that the credit crunch will intensify for an extended period following Lehman Brothers' collapse."