Inflation came in at 0.6 per cent in July on the consumer prices index (CPI), ahead of expectations and up from a rate of 0.5 per cent in June.
Sterling charged higher in the minutes after the figures were published by the Office for National Statistics (ONS). After setting a three-year low against the euro of below €1.15 this morning, the pound hit back against the single currency, rising to €1.1531.
Against the dollar sterling jumped 0.7 per cent to reach $1.2964 and reverse yesterday's losses.
Economists said the higher rate of inflation was driven by the sharp fall in the value of sterling since the UK's vote to leave the EU in a glimpse of faster price rises everybody expects to materialise over the coming months. The weaker pound caused the price of fuel, food, drinks and other imports to jump, with the cost of overseas goods rising by 6.5 per cent for companies, the steepest increase since 2011.
Sterling has fallen 18 per cent on a trade-weighted basis since last November and is down 14 per cent since the EU referendum.
Although still very low by historic standards, the fact the effect of a cheaper pound is already feeding through into higher prices for firms spooked some analysts, who said it could "burst the consumer-led recovery". However much faster rises in inflation were expected to materialise later in the year, as Yael Selfin, KPMG's head of macroeconomics pointed out: "The figures show little evidence that businesses have started passing on the higher costs of imports".
Scott Corfe from the Centre of Economics and Business Research (CEBR) said: "Households are still seeing their spending power increase as earnings are rising at a faster rate than the cost of living.
"The problem is that this could soon be coming to an end. The sharp decline in the value of sterling since the Brexit referendum will translate into higher prices for imported goods over the coming months."
Ruth Gregory of Capital Economics added: "Components that typically respond more quickly to exchange rate movements, such as petrol and food prices, are already putting some upward pressure on CPI inflation."
Former monetary policy committee (MPC) member Andrew Sentance, now at PwC, said: "This is just the start. The big rise driven by a weak pound will take longer to come through - at least six to 12 months."
The Bank of England has already said it will stomach a period of high inflation in order to protect jobs and support growth in the UK economy. It has also signalled a further interest rate cut is likely later this year, prompting economists to suggest inflation will hit three per cent in 2017 - above the Bank's official two per cent target.