Interest rate rise fears as cost of living doubles for middle classes

They warned a rise to at least 5.5 per cent was "a cast iron certainty" following the latest economic data recently published. The numbers show the cost of living has risen to 3.1 per cent, more than 1 per cent above target.

But research from Capital Economics shows the cost of living for middle class families is almost double the rate of inflation.

Source: Capital Economics Click to enlarge

Based on a typical days shopping, the figures reveal inflation rising from 5.4 per cent last October, according to the Daily Telegraph.

Under the terms by which the Bank of England gained independence in 1997, its governor had to write a letter explaining how he intends to control the problem.

The Consumer Prices Index, which measures the cost of a variety of everyday goods, has also nearly doubled from just 1.8 per cent in March last year. The Government target for a rise in the CPI is currently 2 per cent.

The most basic costs of living, such as a pint of milk, a loaf of bread and a gallon of petrol, are hitting finances hardest.

Inflation in the UK is now the highest of any major European economy and the highest since Labour came to power in 1997.

For many families the situation is much worse as the index doesn't include major costs such as council tax and mortgages.

In his letter, the first needed since 1997, Bank governor Mervyn King insisted he believes that inflation will "fall back" this summer.

Another interest rate rise would be a huge blow for hard-pressed homeowners already struggling to cope with three increases since last summer.

But the combination of rampant inflation and house prices could force the Bank's hand, with a decision due on May 10.

Phillip Shaw, an economist at the bank Investec, said: "Today's figures mean a hike next month is now even more a cast iron certainty.

"We recognise a strong risk that interest rates will climb to 5.75 per cent by the summer." Some economists believe there may be two consecutive rises in May and June.

The news comes as the debt charity-Consumer Credit Counselling Service warned homeowners are already "on the rack".

The number of people becoming insolvent has reached a record of around 325 people every day. Shadow Chancellor George Osborne claimed the figures were "worrying" for the British economy.

He said: "Gordon Brown's reputation for economic competence is unravelling before our eyes."

The latest figures will be an acute embarrassment for Gordon Brown with the CPI at the highest level since the month before Britain was kicked out of the European Exchange Rate Mechanism.

Mr Brown has repeatedly used the episode, in September 1992, to attack the Tories' handling of the economy.

In his reply to Mr King he blamed the cost of living rise on factors beyond the Government's control, such as rising oil prices.

The Prime Minister insisted: "The fact is that we have seen ten years of the most steady rises in living standards that this country has seen, probably at any time since the Second World War."

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