CHANCELLOR Philip Hammond must use the Budget to help hard-pressed families after inflation hit a five-year high, the TUC said yesterday.

Rising food and transport costs saw the consumer price index (CPI) measure of inflation rise to 3 per cent for September.

It follows warnings from the Resolution Foundation that rising inflation and stagnating wage growth will unleash the biggest rise in inequality since the days of Thatcher.

In-work households will see a £300 a year squeeze on their finances, while more than half a million people looking for work and 2.4 million disabled people will also feel the pinch, the think tank predicted.

The last time inflation reached 3 per cent was April 2012, after it had reached 3.5 per cent in the previous March.

Food and non-alcoholic drinks rose by 0.8 per cent month-on-month in September after falling by 0.1 per cent over the same period last year.

Fuel prices were also pushed higher, with petrol and diesel both costing 2.5p more on the month.

The Institute for Fiscal Studies said the four-year freeze on most working-age benefits is expected to cost 10 million families £450 a year in real terms, up from a projected £320 when the freeze was first announced.

TUC general secretary Frances O’Grady said: “The government needs to face up to Britain’s cost-of-living crisis. The squeeze on household budgets is getting tighter by the month. Prices are sky-rocketing.”

Speaking ahead of yesterday’s national Britain Needs A Pay Rise rally in London, Ms O’Grady pointed out that five million public-sector workers are being offered another real-terms pay cut.

PricewaterhouseCoopers’ Andrew Sentance said a further rise in the interest rate later this year cannot be ruled out.

But Ms O’Grady said the “economy is simply not strong enough” for another rise in interest rates.

“We need to get wages rising before we start think about hiking rates.”

And Unison general secretary Dave Prentis said: “With the highest rate of inflation for five years, the government’s pay cap is cutting deep. There’s no light at the end of the tunnel for public service workers.”

Labour shadow Treasury minister Peter Dowd said: “Inflation has reached its highest level in five years, while real earnings are still lower than in 2010, following seven years of Tory economic failure.”

Labour has pledged to bring in a real living wage of £10 an hour and invest in infrastructure to increase  living standards and build the economy.