LONDON (Reuters) - Britons' expectations of future inflation surged to a record high of 4.3 percent in May, above market expectations and more than a percentage point above the actual rate, a survey by the Bank of England (BoE) showed yesterday.

The Bank's quarterly survey showed median expectations for the rate of inflation over the coming year had jumped markedly from the previous series high of 3.3 percent in February.

Britons' perception of the current rate of inflation spiked to a record 4.9 percent in May from 3.9 percent in February, the survey showed.

"This will fuel the belief that the next move in interest rates could well be up," said Howard Archer, an economist at Global Insight.

"(It) is clear is that if the Bank of England do cut interest rates, (they) are certainly not going to be doing it for some time."

Markets have moved aggressively to price in higher borrowing costs over the coming year, despite the prospect of weaker economic growth, as central bankers around the world contend with soaring fuel and food prices.

The last reading for consumer price inflation was three percent in April and the (BoE) has forecast it could spike to around four percent.

The (BoE) is charged with keeping inflation at a two percent target and policymakers have expressed concern that the public perception of how fast prices are rising could become dislodged from the actual rate.

Policymakers warn that such an outcome could prove costly to address but expect a slowing economy to help cool price pressures over the medium term.

There is also currently little sign that higher living costs are seeping into wage demands yet - a key worry for the bank.

UK retailers, however, are already warning of the impact of rising inflation on consumers, increasingly unlikely to be offered relief in the shape of a rate cut.

Both Home Retail, Britain's biggest household goods retailer and owner of the Homebase do-it-yourself chain, and Carphone Warehouse warned of a more pessimistic outlook yesterday, battering shares in the retail sector.

BoE Governor Mervyn King is required to write a letter to the government if inflation moves more than a percentage point away from the two percent target, explaining what the central bank plans to do in response.

Although markets are betting on higher interest rates, many economists argue the most likely direction will be down to stave off the risk of recession and a possible housing market crash.

A Reuters poll of economists yesterday showed economists still expect one rate cut this year, despite rising inflation.

Mr. King has dubbed the task of balancing a slowing economy with rising price pressures the toughest challenge the BoE has faced since it was granted independence on monetary policy in 1997.

The BoE's survey also showed Britons have the least satisfaction with the central bank's performance in controlling inflation since the series began.