Inflation Soars Above 5% To Three-Year High

The cost of living in Britain has jumped by the biggest amount in three years, figures have showed, as the CPI rate of inflation soared above forecasts to 5.2%.

Hefty rises in gas and electricity bills last month drove the inflation increase, the Office for National Statistics said.

The CPI rate of 5.2% now equals the high reached in September 2008, and was a large jump from August's rate of 4.5%.

Meanwhile, annual RPI inflation, which also includes housing costs, reached 5.6% last month - the highest it has been since June 1991.

It adds further pressure to Britons' living standards, as wage rises fail to keep pace with higher basic living costs.

However, it is better news for those on state benefits, as September's CPI rate is used to determine next April's rise in payments.

Next year's benefit rates are not formally unveiled until later this year, but the basic single state pension is set to increase by £5.31 to £107.46 a week, while the joint state pension will increase by £8.49 to £171.84.

Jobseeker's allowance is set to increase by £3.51 to £71.01 a week based on the 5.2% rise.

Although the CPI rate has now never been higher since the measure began in 1997, it was expected by the Bank of England.

It had forecast inflation to rise to 5% this year, before falling back below its target of 2% next year.

As he gives a keynote speech in Liverpool tonight, the bank's governor Sir Mervyn King is expected to defend the BoE's decision to leave the interest rate at 0.5% and pump more cash into the economy at a time when inflation is so high.