The Telegraph reports that interest rates could very well increase in June, following the surprising inflation figures. 

A rate rise would end a two-year period of stability, when interest rates lay at a record low of 0.5 per cent. A move upwards could add hundreds of pounds to many homeowner's mortgages but offer relief to 38 million savers, who have suffered from pitiful returns in since the financial crisis started.

The warning about a rise in interest rates came after figures from the Office for National Statistics indicated that so-called factory-gate inflation – the prices that manufacturers have to pay for raw materials – jumped far more than expected during December as a result of the spike in global commodity prices. The rate of inflation jumped from 9.2 per cent in November to 12.5 per cent in December, as the cost of wheat and sugar pushed up the price of ingredients for food manufacturers and the price of metal, oil and chemicals shot up for other factories.

The gilt market, where the Government goes to raise money by selling bonds, immediately reacted with yields rising. These yields are the closest the City comes to a forecast for what interest rates will be in the future. The yield on a two-year Treasury was up almost 6 basis points at 1.37 per cent, having earlier struck a 12-month high of 1.39 per cent. The gilt market is now pricing in an interest rate rise in June, said analysts.

Stephen Lewis, chief economist at Monument Securities, said: "The market movement suggests that investors are thinking that rates are going to rise before June. "David Page, at Lloyds TSB Corporate Markets, said the factory inflation figures “continue to feed the ongoing background concerns that inflation is a growing problem, and it feeds the fear that the Bank of England will react to that.”

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