Activity in Britain's dominant services sector grew at its fastest pace in eight months in January as business recovered from December's snow disruption, a survey showed, bolstering the case for higher interest rates.
The purchasing managers' survey from Markit/CIPS also showed a record jump in input cost inflation in the services sector, which is likely to worry Bank of England policymakers who hold their monthly rate-setting meeting next week.
The headline services PMI activity index rose to 54.5 in January from a 20-month low of 49.7 in December, the highest since last May and well above forecasts for a reading of 51.4.
Many economists see a rise later this year to tackle increasing inflation and are debating whether it could come as early as next week.
The UK government would prefer to see the cost of borrowing remain low when they are driving through unprecedented cuts in public spending to rein in a budget deficit running in excess of 10% of national output.
The Bank of England is divided over whether to raise interest rates to show it is serious about fighting inflation or wait to see how the economy fares after a shock 0.5% contraction in the last three months of 2010.
Markit said some businesses in the services sector had received additional orders in January, displaced from December after Britain suffered its coldest ever start to winter. The survey showed input cost inflation rose at its fastest pace since August 2008.
The input cost index rose to 65.8 from 60.5 - the largest jump since the survey began in 1996. More than a third of firms said their costs had risen over the month, citing January's rise in value-added tax to 20% and higher fuel prices as the main factors.
Worryingly for policymakers, firms passed on price increases at their fastest rate since September 2008. Optimism about the one-year outlook hit its highest level since last May, but service providers cut staffing levels for a fourth successive month.
