LONDON, United Kingdom (Reuters):

Higher British interest rates looked almost certain on Tuesday.

Data showed that price pressures in most parts of the economy gathered pace last month, even though tumbling petrol prices pushed headline inflation lower.

Inflation moderated to an annual 2.4 per cent in September from 2.5 per cent in August as the price of petrol fell by a record 6.4 pence per litre.

But the pullback had been widely anticipated and investors focused on the strength of underlying price pressures and an unexpectedly sharp rise in the retail price inflation measure - on which most pay deals are based - to an eight-year high.

Sterling rose and U.K. interest rate futures fell as investors became more confident Britain's central bank would raise interest rates to 5 per cent next month and possibly even higher next year.

"The acceleration in core inflation and RPI inflation cements the case for a November rate hike, particularly following the recent run of strong housing market data," said Dominic Bryant, economist at BNP Paribas.

"Moreover, the slowdown in headline inflation will be temporary."

Bank of England

The Bank of England raised rates in August for the first time in two years, saying higher borrowing costs were needed to steer inflation back to its two per cent target. Futures markets show around 90 per cent probability of a rate hike next month.

Inflation has been above target for the past five months and rose to 2.5 per cent in August, its joint-highest reading since the ruling Labour Party won power in 1997.

Some economists expect inflation could rise as high as 3 per cent by the end of the year as higher university tuition fees and previously announced utility bill hikes feed into the figures.

Bank of England Governor Mervyn King indicated last week he expected September's dip in inflation to be temporary, and warned that policymakers needed to look beyond short-term fluctuations in oil prices.