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Rising gas and electricity prices were blamed for the 5.2 per cent leap in the Consumer Price Index, a bigger than expected rise from August’s figure of 4.7 per cent.

But economists pointed out that oil prices are tumbling, food prices are set to fall and the slowing economy is likely to dampen inflation further.

That would allow Bank of England monetary chiefs to slash the base lending rate without fears of fuelling inflation. Jonathan Loynes, chief European economist at Capital Economics, said: “We expect interest rates to drop to 2.5 per cent or less.” That would be the lowest Bank of England interest rate for 60 years.

Mr Loynes added: “Provided that the recent fall in oil prices is sustained, inflation should be back below 4 per cent by the end of the year and then start to drop very sharply next spring.

“By the autumn we expect it to have fallen to 1 per cent but it could go lower – and even turn negative – if oil prices fall much further.”

Shares continued to recover as the international banking rescue action steadied jittery money markets. The FTSE-100 index rose by 3.23 per cent, although in the US the Dow Jones index fell slightly because of profit-taking. Signs of bargains galore for shoppers emerged as retailers prepared to slash prices to encourage a Christmas boom. Some retailers have cut prices by as much as 70 per cent.

Office of National Statistics figures gave a mixed picture of prices rises, but revealed grounds for optimism.

They showed that the annual rate of inflation for energy and other household utility bills was 15 per cent last month, the highest level since 1989. Increases in prices for clothes, shoes, toys and games also helped to fuel inflation.

But food price rises slowed down for the first time since March, going up by 12.7 per cent in September compared with 14.5 per cent in August. A record global wheat harvest is now expected to lead to a further drop in the rate of food price rises.