SOARING house prices have pushed inflation through the Bank of England's 2.5 per cent target to its highest level since June 1998.

Economists had expected the effect of higher property costs to feed through to underlying inflation, which rose 0.5 per cent to 2.8 per cent last month.

The figure was also fuelled by more expensive clothing and static petrol prices last month, compared with falls of four pence a litre a year ago.

The headline inflation rate, which includes mortgage interest payments, also rose 0.5 per cent to 2.6 per cent, the highest since February last year.

Mortgage payments were higher because of the increased cost of buying a home and the unfavourable contrast with last year's 0.5 per cent cut in interest rates, the Office for National Statistics said.

House prices also contributed to the underlying 2.8 per cent rate and are likely to push inflation above three per cent next year, say analysts.

The Bank of England has a leeway of 3.5 per cent before it has to explain to the Chancellor Gordon Brown why inflation is so far above target.