Inflation surged to a record high of 4.4 per cent in July, more than double the Government's 2 per cent target, due to the rocketing cost of food.

The Consumer Price Index (CPI) measure of inflation in July rose at a record pace from 3.8 per cent in June and above analysts' forecast of 4.2 per cent. Inflation is now at its highest level since current records began in 1997 when the Bank of England was given independence.

Before 1997, inflation was last higher in May 1992 when the economy was in the grip of recession.

It also emerged today that the Retail Price Index (RPI) measure of inflation, which includes housing costs, rose to 5 per cent, up from 4.6 per cent in June and is the highest for nearly two decades.

It is now likely that the Bank of England will sharply increase its forecasts for inflation in its three-monthly report to be published tomorrow.

In the previous report in April, the Bank said that inflation would peak at just over 4 per cent.

However, last week the International Monetary Fund said UK inflation was likely to reach 5 per cent this year, and some economists predict it could spike during August or September.

Last week, the Bank of England's Monetary Policy Committee (MPC), which has prior access to today's inflation figures, voted to keep the interest rate on hold at 5 per cent.

It is now unlikely that the MPC will vote to cut borrowing costs in the short term, and may increase the interest rate to stem inflation.

Howard Archer, chief UK and European economist at Global Insight, said: "The sharp spike up in inflation in July increases the risk that the Bank of England will raise interest rates, despite the fact that the economy seems more likely than not to contract over the second half of the year."

Analysts said the 0.3 per cent rise in core inflation, a measure that excludes volatile energy, food, alcohol and tobacco costs, to 1.9 per cent in July, signalled that, even though demand was waning, retailers were being forced to pass on their increased costs to customers. This raised concern that "second-round" effects of higher oil prices could be passing through to the economy, entrenching higher prices for consumers.

The cost of living has risen for some households after another round of punishing price increases by two major energy groups, despite a slide in the wholesale price of gas and oil.

However, inflation has also been driven higher by record rises in the cost of food, with food inflation spiralling to 12.3 per cent, the biggest leap since 1997.

The cost of air travel also rose sharply, due to rocketing oil, with prices increasing at an annual rate of 8.9 per cent, up from 5.4 per cent in June.

Energy prices rose at 16.1 per cent in July, up from 13.8 per cent in June, and economists say these could rise more as further price increases kick in.

Households are grappling with rising energy costs after a number of suppliers increases bills in recent weeks.

EDF was the first leading provider to raise bills for its five million UK customers, increasing gas by 22 per cent and electricity by 17 per cent.

However, British Gas went further and increased its gas bills by 35 per cent, and electricity by 9 per cent.

Scottish Power is among those expected to announce double-digit price rises for its 5.2 million gas and electricity customers soon, while E.ON, npower and Scottish & Southern Energy are also thought to be preparing further rises to household bills.

The pressure on households' income was highlighted yesterday as the price of goods leaving factories rose at the fastest pace since 1986.

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