Unions on Tuesday night dismissed calls from the chancellor to curb pay demands as inflation hit its highest level for 16 years, leaving little prospect of near-term cuts in interest rates.

The annual rate of consumer price inflation shot up faster than expected from 3.3 per cent in May to 3.8 per cent in June, the Office for National Statistics said – the highest since 1992 and nearly double the Bank of England’s 2 per cent target.