UK inflation has increased to its highest level in 10 years owed in part to a rise in fuel and household energy costs.

The Consumer Prices Index (CPI) rose by 4.2% in the year to October, climbing from 3.1% the previous month, the Office for National Statistics revealed this week.

It marked a bigger rise than economists had expected, the highest since November 2011, adding pressure for the Bank of England (BoE) to hike interest rates.

Inflation now sits at more than double the Bank’s 2% target, and is expected to keep climbing to as much as 5% by next April.

Interest rate increases could make some people, including buy-to-let landlords, worse off as this could result in increasing tax bills

Paul Haywood-Schiefer, a senior manager at Blick Rothenberg, said: “Whenever interest rates rise, investors see a higher return on their money. Whilst that is beneficial to them, it will form part of taxable income and may need to be reported and tax paid on it via self-assessment.”

He added: “A knock-on effect of this will be in relation to landlords who have taken out mortgages and loans on rental properties.

“Increased interest costs are not something that can immediately be remedied by a straight tax deduction as since April 2020 the amount of relief that private landlords could claim on finance costs, including loan interest is only a basic rate tax deduction [currently 20% of the actual expense]. Therefore, only 20p in every £1 of additional interest would be relievable, which might in turn make the landlord consider an increase in the rent charged to cover this.

“Only those running their property business through a company or as a furnished holiday let are still able to claim full deduction on interest, so an increase in the interest just creates a higher deduction against the taxable profits of the property.”