Millions of people face soaring energy bills after British Gas increased its gas and electricity prices by 15 per cent yesterday. The average annual energy bill for a British Gas dual-fuel customer will increase by more than £130 to £1,051, according to uSwitch, the price comparison service.

British Gas increased the prices for about 11 million account-holders just days after EdF energy and npower announced double-digit increases on their tariffs. Other energy companies are expected to follow suit, meaning that most households will face price rises during the coldest months, when homeowners use most energy.

The increases will compound the winter misery for consumers already struggling with spiralling household bills for mortgages, food, petrol, council tax and insurance.

Calculations by The Times show that a family living in Cambridge with a £270,000 variable-rate mortgage and one car will have found their annual household bills increasing by £2,380 over the past year. Some costs, such as water and council tax, are to rise even more in the coming months.

Official figures show the price of household staples such as milk, cheese and eggs is up 15 per cent year-on-year, while meat is 7.5 per cent more expensive and bread up nearly 6 per cent.

Even McDonald’s admits that it may have to raise some of its prices this year as food inflation bites. Costs at the fast-food giant have been rising by 5 to 6 per cent and Steve Easterbrook, British chief executive, said that supermarkets and restaurant groups alike will be under pressure to pass these on to customers over the coming months.

“Consumers have been used to falling prices over the past two decades,” he said. “This is the first time that there has been a correction and people will have to get used to paying more for their food.”

Council tax bills have also risen by above-inflation rates since last year. The average household is paying £1,315, nearly £50 more than this time last year. Those in B and G are paying £2,201, up from £2,113. The average council tax bill is expected to rise by a further 4.5 per cent in April, taking the average bill to £1,380. This will mean that council tax has doubled since Labour came to power ten years ago.

Soaring food and energy prices are creating a dilemma for the Bank of England over its next moves on interest rates. Rising household bills and costs for companies both stoke inflationary pressures, while putting the brakes on growth by sapping consumer demand, leaving the Bank’s rate-setting Monetary Policy Committee (MPC) caught in a vice, and threatening to limit its ability to cut borrowing costs to shore-up a faltering economy.

The quandary for the Bank was highlighted this week by Sir John Gieve, its Deputy Governor. He noted that while the economy was “slowing quite sharply”, making a case for rate cuts, the MPC had also to grapple with the danger that fuel and food costs are “likely to raise our inflation rate well above target in the coming months”. Sir John said the Bank faced testing times, in comments that dampened hopes of further, aggressive, rate cuts after a likely reduction next month.

Debt charities are concerned about the impact rising prices will have on households. Moira Haynes, of Citizen’s Advice, said: “Our inquiry figures suggest that many hundreds of thousands of people are increasingly struggling to meet their day-to-day living expenses.”

British Gas said its prices were going up because of the cost of wholesale gas. Phil Bentley, managing director, said: “Lower availability of supplies from both the UK and the Continent, coupled with higher global oil prices, have forced up wholesale prices.”

Ann Robinson, director of consumer policy at uSwitch.com, said the price rise “will leave millions of consumers wondering what this company has done to deserve their loyalty and continued custom in 2008”.

British Gas is expected to report profits of £800 million next month.

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