Inflation hit 5.4 per cent in December last year, further amplifying a cost of living crisis and piling pressure on the Bank of England to raise interest rates.
Price rises in transport, food, and household goods, alongside a leap in energy costs, drove the consumer prices index to its highest level since March 1992.
There are fears that inflation could jump further in April when the energy cap is changed, with fears that the cost of energy could rise by as much as 50 per cent.
All eyes will now be on the Bank of England’s monetary policy committee as it meets in February to discuss whether to raise interest rates in order to curb inflation down to the 2 per cent target set for the central bank.
In December the MPC surprised markets by hiking the rate to 0.25 per cent from the historic low of 0.1 per cent.
Paul Craig, portfolio manager at Quilter Investors, said the central bank was facing a difficult trade-off.
“It’s not so much silence of the lambs now but silence of the doves," he said.
“The MPC will be faced with a difficult trade-off between ensuring financial stability or helping households cope with a cost of living crisis that is set to squeeze household finances over a difficult winter period.”
Martin Lawrence, director of investments at Wesleyan, said when it comes to protecting money from the impact of inflation, prevention is better than the cure.
“Anyone with spare cash sat in their bank accounts, or other low-interest savings accounts, should seriously consider their options to prevent the ‘buying power’ of their money being eroded over time," he said.
“Investing in a stocks and shares Isa or investment fund, both of which aim to achieve strong financial returns in the long term, are just some ways to make your money work harder during a period of high inflation and low interest rates.”
Ben Kumar, senior investment strategist at 7IM, said though this latest rise will impact savers, they should remember that these figures represent the average consumer’s spending, which might be different to that of each individual.
He said: “For investors, the goal should be to ensure that savings at a minimum keep pace with inflation.
“But it’s worth taking the time to work out what that inflation level is for you as an individual – where do you sit on that scale and will protecting against the official rate be more than ample or perhaps not enough.
“Because, for now, the inflation number you see on the news will almost certainly not describe your personal experience of prices.”
Chancellor of the Exchequer, Rishi Sunak said: “I understand the pressures people are facing with the cost of living, and we will continue to listen to people’s concerns as we have done throughout the pandemic."