Inflation set to hit 3% after shock increase in October

Inflation shot to a five-month high in October as the trebling in university fees and rising food prices forced up the cost of living.

Figures from the Office for National Statistics (ONS) showed annual consumer price inflation leaped to 2.7% from 2.2% in September, way ahead of economists’ forecasts.

The main factor in the shock rise was the controversial increase in maximum university tuition fees. These have risen to £9,000 a year from just over £3,000, a move that on its own added 0.3 percentage points to the inflation rate.

Higher food prices, exacerbated by the rainy weather spoiling the potato crop and pushing up the price of the staple vegetable, were also to blame, said ONS.

The Treasury said the rise in inflation was ‘disappointing’ as experts predicted inflation would rise above 3% as higher energy bills hit households later this year.

Len McCluskey, general secretary of Unite, the union, said: 'We are in a desperate situation where millions of working people and their families are juggling rising food and energy bills when household incomes for the majority of people have not kept pace in recent years. Where families lead in suffering, shops and businesses will follow.'

Chris Williamson, chief economist at Markit, the financial data provider, said consumers were unlikely to see CPI reach its 34-month low in September for some time. ‘The Bank of England's updated growth and inflation forecasts, due tomorrow, are likely to show that inflation will rise further in coming months, due largely to higher energy and food prices.

‘The Bank's current estimate that inflation will fall below its 2% goal by the end of 2013 is looking somewhat optimistic as a result,’ said Williamson.

David Kern, chief economist of the British Chambers of Commerce, urged the Bank of England not to extend its ‘quantitative easing’ or money printing programme, which is widely viewed as inflationary.

So far the Bank has pumped £375 billion of new money in to the economy in the past three years. Last week it refrained from announcing a further increase in QE although it did say it would transfer up to £35 billion of cash from the scheme to the Treasury.