Interest rates have risen for the second time in three months as the Bank of England tries to curb a rapid rise in the cost of living.

The hike to 0.5% from 0.25% came as the Bank warned that price rises could speed up.

Prices are expected to climb faster than pay, putting the biggest squeeze on household finances in decades.

It comes as the chancellor unveiled a support package to help households cope with a 54% jump in energy bills.

Rising gas and electricity costs are the main factors pushing up prices across the economy.

Inflation, as measured by the consumer prices index (CPI), is expected to peak at 7.25% in April, and average close to 6% in 2022.

This would be the fastest price growth since 1991 and is well above the Bank’s 2% target.

There are also increasing signs of broader price pressures across the economy.

Prices of household appliances such as fridges climbed almost 10% over the past year.

Goods shortages also meant retailers were offering fewer bargains in the January sales compared with previous years.

Food prices and rents were also likely to creep up in the short term, the Bank warned.

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