Inflation highest since 1992

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Economists said the Consumer Prices Index (CPI), which hit 5.2% last month because of soaring gas and electricity bills, would decline rapidly as the economy slows.

September's CPI was the highest since the benchmark was introduced in 1997 and the biggest since March 1992 by historic data. A year ago it stood at 1.8%.

After energy price hikes - and an earlier round of increases in January - electricity prices are up 30.3% and gas costs up almost 50% year on year.

Howard Archer, chief UK and European economist at Global Insight, said CPI was "almost certainly now at its peak, or very near to it". "Very weak economic activity, rising unemployment and extended tight credit conditions will increasingly dilute underlying inflationary pressures," he said.

The Government also faces paying out billions more in benefits and pensions after the headline Retail Prices Index (RPI) reached 5%.

September's RPI - which was last higher in July 1991 - is used by the Government to calculate pension increases for the coming year. Pensions usually increase by 2.5% or headline RPI, whichever is higher. A 5% rise in the current £47 billion cost of the basic state pension could add more than £2 billion to Government costs.

The Bank's Monetary Policy Committee (MPC), which cut rates by 0.5% last weekonomy weakens. This left some economists warning of inflation undershooting the 2% target as oil and food prices drop back and businesses lower their prices to attract customers as the economy slows.

Chief Secretary to the Treasury Yvette Cooper said: "Now that oil prices are coming down it's really important that utility companies pass on price decreases to customers as soon as possible."