Soaring energy bills will fuel inflation

The soaring energy bills faced by millions of British Gas customers are also bad news for the Bank of England's efforts to keep a lid on inflation.

The official measure of the cost of living - the Consumer Prices Index - is currently almost double the Bank's 2 per cent target, reaching 3.8 per cent in June.

Following today's rise, experts predict CPI could hit 5 per cent or higher in September - denting the chances of interest rate cuts to aid a struggling UK economy.

Investec chief economist Philip Shaw - who previously pencilled in average increases of 20 per cent for gas bills and 16 per cent for electricity from the UK's major energy firms - said: "It increases the chances that inflation will hit 5 per cent over the autumn."

Although the impact could be offset by falling petrol prices later this year as oil prices retreat from their recent highs, Mr Shaw added that British Gas's move was "obviously not good news" for inflation.

Howard Archer, UK chief economist at Global Insight, added: "If inflation goes up near 5 per cent it is very hard to see the Bank of England cutting rates, although a lot will still depend on how much the economy slows and whether wage moderation continues."

The price hikes from British Gas and Centrica have arrived earlier than expected, meaning that inflation will peak earlier.

Mr King was forced to write an open letter to Chancellor Alistair Darling in June when the CPI rose more than 1 per cent above target - with the prospect of several more to come as inflation remains above target well into next year.

He predicted at the time that inflation would rise above 4 per cent but warned "there are considerable uncertainties in both directions around this, and any such projection is particularly sensitive to changes in domestic gas and electricity prices."