Bigger domestic energy bills and steeper rents meant that UK inflation in November was at its highest level for nearly a decade, eroding the value of saving and investment.

According to figures from the Office of National Statistics (ONS), the Consumer Price Index (CPI) for the month leapt from 2.4% to 2.7%, with the monthly inflation rate pegged at 0.3%.

Howard Archer at Global Investment, analysing the figures, was not sanguine at the prospect for UK interest rates or UK investment generally. “The November inflation data will not be very well received at the Bank of England, and will undoubtedly fuel expectations that interest rates are headed even higher in 2007.”

UK bonds fell on the news, which signals that professionals in the UK investment arena are expecting another rise in interest rates early in the New Year. Many City insiders said the figures would provide the more hawkish members of the Monetary Policy Committee (MPC) – the group at the Bank of England that sets Bank Base Rate – with ammunition to argue for further interest rate rises.

Some analysts are concerned that the new round of public sector wage negotiations in the New Year will exacerbate the problem, as any hike in wages would provide more unwelcome pressure on price growth.

“With headline inflation continuing to rise, the MPC will keep a close eye on turn-of-the-year wage settlements,” said Philip Shaw, chief economist at Investec.