LONDON (Reuters) - Britons fear inflation will gather pace over the coming year, complicating life for the Bank of England as it grapples with an unenviable combination of slowing growth and rising price pressures.

A survey by the central bank showed Britons' expectations of future inflation rose to a record 3.3 percent in February, more than a percentage point above the actual rate of inflation.

Bank policymakers are concerned that high inflation expectations can become self-fulfilling as workers demand higher wages to keep up with living costs.

"It is highlighting the Bank's dilemma. We have continued downside risk to growth on the one side of the equation but on the other side it seems that inflation risks are also rising," said Audrey Childe-Freeman at CIBC World Markets.

"With oil prices trading at $110 this is not going to go away. This is a problematic position to be facing."

At 3.3 percent, inflation expectations are at their highest since the central bank began its survey in November 1999.

Britons' expectations of future inflation have crept steadily higher over the past year as food prices, energy bills and petrol costs have all rocketed. In November, the median was 3.0 percent. A year ago it was 2.7 percent.

The survey also showed people's perception of the current rate of inflation leapt to a record 3.9 percent, a full percentage point above its level a year ago.

Consumer price inflation has been running above the central bank's 2 percent target since October. The latest official figures show inflation at 2.2 percent but that measure strips out many factors, notably housing costs.

Some economists have suggested consumer's perceptions of inflation are unduly influenced by the price of items they buy most frequently, such as bread and petrol.

"It is possible that the public's inflation expectations are being temporarily lifted by the latest round of utility price hikes and the rapid rates of food price inflation, factors which tend to be widely publicised and easily noticeable," said Paul Dales at Capital Economics.

Bank Governor Mervyn King has indicated inflation could well rise to 3 percent in the short term as record oil prices feed into household utility bills.

The Bank cut interest rates in February for the second time in three months to shore up the economy in the face of a global credit squeeze.

However, policymakers remain concerned about inflation. King has said Bank's monetary policy committee faces its toughest policy challenge this year since becoming independent from government in 1997.

The Bank kept rates on hold at 5.25 percent earlier this month but investors are betting rates will fall to 4.5 percent by the end of the year.

"The Monetary Policy Committee is pragmatic about what is the right measure of inflation expectations but clearly a rise in their own survey is not going to help in bringing rates down quickly," said Philip Shaw, chief economist at Investec.

The survey was conducted between February 7 and 19, just after that month's interest rate cut.