Inflation in the U.K., which had shown signs of cooling off after peaking at 3.1% last September, unexpectedly surged back above that mark in December, reaching a three-year high of 3.4%, new figures from the Office for National Statistics (ONS) reveal today.

The increase came as a surprise to economists who had predicted a slower pace of inflation and expected it to dip below the Bank of England’s target rate of 2%. The ONS attributed the unexpected spike in part to rising transport costs, including fuel prices which jumped by 13p per litre year on year – their biggest annual increase since records began.

The news is likely to intensify concerns about living standards and add pressure on Chancellor Jeremy Hunt to act fast in addressing soaring energy bills, a looming threat to the British economy as winter sets in. With inflation now running at its fastest pace since 2011, many families are facing an uphill battle to keep their heads above water this coming year.

The Bank of England has already raised interest rates four times over the past twelve months – most recently by a half-point to 3% in response to high inflation and rising wages. However, some experts argue that further rate hikes could worsen economic pain for households already grappling with increasing bills and reduced disposable income.

The Bank’s Monetary Policy Committee (MPC) will make its next interest rate decision on January 26th, at which point it is expected to announce another rate rise as part of efforts to curb inflation. Moreover, this could potentially push borrowing costs even higher for businesses and homeowners alike – a move that some fear may tip the economy into recession or slow down growth further.

The surge in inflation also comes amid growing uncertainty over Brexit, with Prime Minister Boris Johnson’s government facing ongoing criticism over its handling of negotiations with the European Union (EU). A no-deal Brexit could exacerbate already rising costs for businesses and consumers alike by imposing new tariffs on imports from Europe.

Meanwhile, recent data from the British Retail Consortium showed that retail sales growth slowed significantly in December compared to November – dropping to 0.1% month-on-month. In particular, this indicates a potentially troublesome trend for consumer spending during what is usually considered an essential period of growth for businesses ahead of the holiday season.

In light of these challenges, analysts have warned that there could be further pain in store for consumers and businesses alike as inflation continues to outstrip wage growth – meaning many families are seeing their purchasing power eroded even before considering increased taxes or higher energy bills.

Moreover, the ONS data also showed that core inflation, which excludes volatile food and energy prices, rose to 2.4% from 1.