Inflation will peak at 5% before falling back next year in the face of a deepening UK economic slowdown, the Bank of England is expected to say.

The Bank will provide projections for inflation and GDP growth over a two-year period in its quarterly inflation report.

The findings, due to be presented by Governor Mervyn King, will highlight the inflationary headache which has so far prevented the Bank from cutting interest rates in order to support the faltering UK economy.

Analysts currently expect rates to remain at 5% for the rest of the year, before a series of rate cuts next year as inflation starts to ease.

Inflation in July hit a new record of 4.4% after a 0.6% jump during the month - the biggest leap on record. Consumer Prices Inflation (CPI) is now running at more than twice the Government's target of 2%, having risen 1.1% since May alone. And economic growth has slowed during this year to just 0.2% during the quarter between April and June.

The squeeze means this month's inflation report will be one of the most eagerly anticipated since Bank of England gained independence in 1997 as analysts and economists look for clues about how officials intend to get inflation back to its 2% target over a two-year time period.

Economists at Royal Bank of Scotland said the data was likely to show "the CPI central projection peaking close to, or even at, 5%" later this year.

But conditions could be "more benign" around the two-year forecast mark, the bank said, meaning "the scope for future monetary policy easing may be more apparent".

The May Inflation Report said inflation was likely to peak at about 3.7% this year and remain well above 3% until well into 2009. GDP growth was also expected to fall as low as 1% in 2008.

But further oil price rises during the following three months, soaring food inflation and recent energy bill hikes are expected to push inflation up to the 5% mark in the coming months.

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