Inflation hits 16-year high, but 'may have peaked'

The rate of CPI inflation has jumped to 5.2%, its highest level since 1992, official figures show.

The Office for National Statistics said that the rise in September was driven largely by energy prices, and by increases in the cost of recreational activities and clothing.

However, increases in the price of food slowed, leading to speculation that the rate of inflation in that sector has now peaked.

Combined with lower oil prices and the wider slowdown in the economy, many economists are predicting that overall inflation will slow. That analysis has encouraged retailers to call for further reductions in interest rates, following the Bank of England's emergency measure to reduce the Bank Rate from 5.0% to 4.5% last week.

David Kern, economic advisor to the British Chambers of Commerce, said: "The [Bank] must continue cutting interest rates in order to consolidate the positive impact of the bank recapitalisation programme and last week’s internationally co-ordinated interest rate cut.

"We urge the MPC to cut rates to 4.25% in November, and to bring rates down rates to at least 4.0% in the following months."

IMAGE Matt Dunham/AP/PA Photos