Sterling climbs as cost of living rises by 2.9pc

Sterling hit a 12month high against the dollar yesterday as investors bet the Bank of england will be forced to raise interest rates to tame rising inflation.

Figures from the Office for national Statistics showed inflation jumped from 2.6pc in July to 2.9pc in August as the price of clothing and petrol rose.

the rise in inflation since the Brexit vote – it was last higher in April 2012 – has tightened the squeeze on cashstrapped households and piled pressure on the Bank to raise rates. But it is hoped that the worst of the squeeze is coming to an end with analysts predicting that inflation will peak at around 3pc in the coming months before falling.

the pound hit a oneyear high of $ 1.3287 against the dollar and a six-week high against the euro of €1.1131 on speculation rates will rise sooner than previously thought. the Bank will announce its latest decision on interest rates at noon tomorrow – with members of the monetary policy committee at loggerheads.