UK inflation jump puts Bank of England back in spotlight on rates

* CPI +2.9 pct yy, vs Reuters poll consensus +2.8 pct

* Joint highest CPI rate since April 2012

* Bank of England to decide on rates on Thursday

* Clothing prices rise on Brexit effect, fuel up too

* Sterling hits four-week high vs euro

(Adds pound hitting one-year high against dollar, comments)

By William Schomberg and Alistair Smout

LONDON, Sept 12 (Reuters) - British inflation hit its joint

highest level in more than five years in August, complicating

the Bank of England's job this week of explaining why it is not

raising interest rates.

The fall in the value of the pound since last year's vote to

leave the European Union helped drive the biggest rise in

clothing prices since the consumer price index was launched in

1997 and rising global oil costs also had an impact.

Consumer prices overall increased by 2.9 percent compared

with a year earlier, the Office for National Statistics said, up

from 2.6 percent in July and above the median forecast in a

Reuters poll of economists for a rise of 2.8 percent.

That took the CPI back to its level in May. The last time it

was higher than 2.9 percent was in April 2012.

Sterling hit a one-year high against the dollar after the

data and it rose strongly against the euro too as investors

priced in a greater chance of the BoE (Shenzhen: 000725.SZ - news) raising rates for the

first time in a decade. British government bond prices fell.

Sam Hill, an economist with RBC Capital Markets, said the

BoE had been expecting inflation of 2.7 percent in August and

while no change in rates was likely this week, the inflation

reading was a challenge for the central bank.

Most members of its Monetary Policy Committee are worried

that uncertainty about Brexit will hurt the economy, which

slowed sharply in the first half of 2017, and they have so far

held off on voting for raising rates.

Furthermore, households have lost spending power as their

wages are left behind by inflation. Figures due on Wednesday are

expected to show pay grew by an annual 2.3 percent in the three

months to July, picking up a touch but lagging inflation.

"I think it will be a real headache for the MPC," Hill said.

"Inflationary pressure is there but there is also evidence that

consumers are having a tough time."

PIPELINE PRESSURE

The BoE targets 2 percent inflation. It expects inflation to

hit about 3 percent in October, but much of it was due to the

fall in the value of the pound since the Brexit vote which the

BoE expects to gradually fade out of the inflation figures.

However, a further recent fall in the pound against the euro

is likely to keep pressure on British inflation for longer than

the BoE forecast in August.

The BoE is expected to keep the possibility of a rate hike

on the radar for investors in its statement this week. Some

economists said three of the MPC's nine members might vote for a

rate hike, up from two last month, with chief economist Andy

Haldane joining the dissenters.

But Paul Hollingsworth, an economist with Capital Economics,

said he expected inflation to peak at 3.1 percent in October and

the subsequent easing of price pressures would probably leave a

clear majority of rate-setters voting for no change.

"With (Other OTC: WWTH - news) mixed signals on the current strength of the economy

and the majority of the Committee appearing to be comfortable

with a temporary, exchange-rate driven pick-up in headline

inflation, we don’t think that the MPC will be panicked into

raising interest rates imminently," he said.

Most economists polled by Reuters in late August said they

did not expect a rate hike until 2019.

Tuesday's data hinted at some future price pressure as the

costs of raw materials and of goods leaving factories increased

slightly. Factory gate prices rose by an annual 3.4 percent, the

first increase in the rate since February.

(Additional reporting by David Milliken; Writing by William

Schomberg; Editing by Janet Lawrence)