Inflation concerns remained at the top of the financial market agenda on Tuesday as very robust UK consumer price data highlighted the problems facing central banks around the world and oil prices held near record highs.

UK consumer price inflation rose at an annual rate of 3 per cent in April, up from 2.5 per cent in March and way ahead of expectations.

The CPI data came on the heels of Monday’s very strong producer price data and downbeat surveys on UK retail sales and housing on Tuesday.

“Consumer price inflation is markedly above target and rising, while the very weak BRC retail sales monitor and RICS housing market survey for April reinforce concern that the economic downturn is deepening,” said Howard Archer, chief UK economist at Global Insight.

“Consequently, the Bank of England will have to tread very carefully on monetary policy.”

Investors will now be keenly awaiting US and eurozone inflation figures due out today and tomorrow.

Camilla Sutton, at Scotia Capital, said the shift in market focus back to inflation highlighted that while the US economic backdrop remained weak, the Federal Reserve had got ahead of the monetary easing cycle – which should help stimulate growth.

“Accordingly, while other central banks are facing the increasingly real potential that inflationary pressures are escalating, even as their economies slow, the Fed is in a surprisingly envious position as it has already dramatically reduced interest rates and can now complete its cycle.”

Indeed, there was some slightly better than expected news on the US economy, although analysts cautioned against over-optimism.

US retail sales fell by 0.2 per cent last month, although sales excluding cars grew by an unexpectedly robust 0.5 per cent.

Drew Matus, senior economist at Lehman Brothers, said the strength of the report offered a reminder of the resilience of the US consumer.

“However, as conditions deteriorate and the likely positive effects on spending from the tax rebates over the next few months fade, we expect to see the US consumer retrench,” he said.

Adding to investors’ inflation concerns was news that US import prices rose 15.4 per cent in the year to April, the biggest annual increase since the index was first published in November 1992.

Stress in the money markets continued to show signs of easing as the so-called TED spread – the gap between the three-month dollar London interbank offered rate and the yield on the three-month Treasury bill – hit its lowest level for nearly three months.

Credit markets continued to improve following the steep widening in spreads seen last week. The iTraxx Crossover index – a closely watched barometer of credit quality – dropped 12 basis points to 433bp while the benchmark US investment grade CDX index fell back below 100bp.

But US and European equity markets found little to cheer as Wal-Mart delivered a gloomy outlook and Crédit Agricole said it was considering a €5.9bn capital increase after taking further writedowns.

Late in New York, the S&P 500 index had closed a fraction lower following its strong rise on Monday. In Europe, the FTSE Eurofirst 300 index ended flat.

Asian markets put in more encouraging performances, however, with the Nikkei 225 in Tokyo rising 1.5 per cent, Taipei 1.8 per cent and Seoul 1.1 per cent. Shanghai fell 1.8 per cent following the huge earthquake in Sichuan province but Hong Kong rallied to end 2 per cent higher.

European government bonds fell back after European Central Bank officials signalled that interest rates would need to remain at a six-year high to keep inflation reined in. The rate-sensitive two-year Schatz yield rose 10bp to 3.81 per cent. US Treasuries also fell amid inflation fears and the two-year yield was up 14bp to 2.46 per cent.

But the dollar gained ground on the currency markets as the retail sales figures further lessened the odds of the Federal Reserve cutting interest rates next month. Sterling initially rose after the CPI data but then retreated as fears about UK growth resurfaced.

In commodities, oil came within a whisker of $127 a barrel as it touched a record high for a seventh successive session.