Inflation is likely to hit the 5% mark later this year, the Governor of the Bank of England, Mervyn King, has announced.
In the Bank's latest report on inflation, it said that the economy remained under pressure, and that household finances had been put under strain by rising utility bills and a fall in real incomes.
The report assumed of a 15% rise in electric prices, alongside a 10% hike in gas bills, putting further pressure on consumer budgets.
Inflation has remained stubbornly above the Government's target of 2%, with the Consumer Prices Index (CPI) currently at 4%.
"There is a good chance that inflation will reach above 5% later this year and is more likely than not to remain above the 2% target throughout 2012, boosted by the increase in VAT, higher energy and import prices," Mr King said.
While inflation is expected to remain above 2% in 2012, the Bank predicts that it will fall through next year and 2013 as the impact of VAT and other economic pressures ease.
There is a 'great deal of uncertainty about the outlook for inflation,' admitted the Bank.
As well as outlining its expectations for inflation, it downgraded its prediction for growth in the UK economy in 2011 from 2.00% to 1.75%.
GDP growth was weaker than expected in the first quarter of this year, with the Office of National Statistics reporting a rise of just 0.5%.
The announcement represents another blow to savers who can expect their funds to be eroded further.
There are only a handful accounts that outstrip the rate of inflation currently, many of which require the holder to invest money in a more risky investment.
Savers looking for a good home for their funds should begin their search at the Moneyfacts.co.uk Best Buy tables.
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