Frenzied high street activity over the festive period is set to fuel a rise in inflation when figures are released this week, according to economists.

Smaller discounts in the New Year sales compared with 12 months ago means there will be more upward pressure on the annual retail price index.

City experts believe the key underlying rate of inflation is likely to have climbed to 2.1 per cent in January, compared with 1.9 per cent the previous month.

Rising house prices and the fact sharp falls in petrol prices a year ago have not been repeated this time round are also thought to have pushed the rate up.

The rise would still keep the underlying rate below the Bank of England's target level of 2.5 per cent but will lengthen the odds of another interest rate cut.

The inflation figures are due out on Tuesday and the Bank's long-term view will come a day later in its quarterly inflation report.

Unemployment figures released on Wednesday are forecast to show another small jump in the number of people claiming benefit.

The claimant count is expected to have edged up by a further 5,000 to 7,000 in January.

Economists believe buoyant sectors such as retail have helped offset the impact of recent job cuts in the manufacturing sector with work readily available.

Mr Butler said: "The places that are booming are recruiting."