Inflation in the UK climbed sharply to 4.2 per cent in October, its highest rate for almost a decade, driven by rising fuel and energy prices, adding to pressure on the Bank of England to raise its key interest rate at its December meeting.

The cost of living, as measured by the Office for National Statistics’ Consumer Price Index, rose at its quickest rate since November 2011 last month. In October alone, it surged by 1.1 per cent, in large part due to higher energy costs for households.

On Monday, Andrew Bailey, the governor of the Bank of England told MPs that he was “very uneasy” about rising inflation.

The fresh data comes after the employment figures defied some economists’ expectations by proving resilient to the end of the furlough scheme at the start of October. The unemployment rate fell to 4.3 per cent from July to September, and employers added 160,000 workers to their payrolls last month.

However, the cost-of-living squeeze showed little sign of abating Wednesday, with a 4.2 per cent increase in the Office for National Statistics Consumer Price Index in October, up from 3.1 per cent in September. This compares with an underlying rate of wage growth which the ONS has estimated to be between 3.2 and 4.4. per cent, while official data has likely been distorted by the impact of COVID-19.

Both the Bank of England, and the government’s official spending watchdog, the Office for Budget Responsibility have suggested that price growth could reach as high as 5 per cent in by early next year, outstripping the rate of pay growth and putting pressure on household budgets.

Grant Fitzner, chief economist at the ONS, said: “Inflation rose steeply in October to its highest rate in nearly a decade.

“This was driven by increased household energy bills due to the price cap hike, a rise in the cost of second-hand cars and fuel as well as higher prices in restaurants and hotels.

“Costs of goods produced by factories and the price of raw materials have also risen substantially and are now at their highest rates for at least 10 years.”

The rate of 4.3 per cent for the 12 months to October is more than twice the Bank of England’s mandate from the government to contain inflation to close to 2 per cent. The latest data will therefore add considerable pressure on policymakers to increase the key interest rate from its historically low level of 0.1 per cent.

However, the figures also come amid increasing evidence that the UK’s economic recovery from the pandemic has stalled, adding to the risk that an interest rate rise could further slow economic growth.

Jack Leslie, senior economist at think tank the Resolution Foundation, said: “The global economic recovery has caused a rapid rise in inflation that families are feeling at the petrol pump, in their energy bills, and in their pay packets. With inflation forecast to hit 5 per cent by next Spring, we could be set for a sustained period of shrinking pay packets.

“While painful for households, the fact is that the global nature of these inflationary pressures mean that traditional tools such as raising interest rates are likely to have little effect.

“Instead, we need to focus on securing the as yet incomplete Covid recovery so that stronger growth creates more scope for higher pay rises.”

Aside from higher energy costs, the rise in the ONS’s measure of price growth, CPI, was also fed by price increases in education, transport, clothing and footwear, housing and household services, and restaurants and hotels, suggesting that service providers may be passing on the costs of higher staff pay packets and supply chain disruption to consumers.

But while City economists and the Bank of England believe that inflation could reach 5 per cent next spring, some believe that it will drop down by late 2022, meaning that any hikes to the central bank’s key interest rate will be limited.

A 5 per cent “peak” in April 2022 “would be in line with the Bank’s forecast, which the Bank has said is consistent with interest rates needing to rise”, said Paul Dales, chief UK economist at Capital Economics.

“Further ahead, we suspect that CPI inflation will fall back a bit further and a bit faster in the second half of next year, perhaps to close to the 2.0% target by December 2022,” he added. “So although interest rates may well rise from 0.10 per cent to 0.25 per cent in December and perhaps to 0.50 per cent in February, we don’t think that they will reach the level of 1.00-1.25 per cent currently priced into the market for the end of next year.”