Food prices accounted for much of the increase, with vegetables such as mushrooms and cauliflowers up in price due to the weather. The housing component of the RPI was up 9.2 per cent in the year to October. Speaking via video link, Tony Blair said he knew it was hard to have interest rate rises and consequent pressure on the pound. But he added: “Better to have interest rate rises now – still at 7.25 per cent – than to go back to the early Nineties when they were at 15 per cent for a year.”Retail price inflation rose to 3.7 per cent last month, its highest since September 1995. With the September and October headline rates the most commonly used as a basis for pay claims in the all-important January round, analysts expressed concern that inflation approaching 4 per cent could lead to significantly higher pay settlements next year.Figures due today on unemployment and average earnings will be eagerly scrutinised for any signs that the tight jobs market is already causing wage pressures.The underlying measure of inflation, excluding mortgage interest payments, rose to 2.7 per cent in October, moving further away from its 2.5 per cent target.The last round of mortgage increases explained part of the rise in the headline inflation rate. David Bloom of James Capel said: “The MPC will have little choice but to continue on a course of interest rate tightening.”At the CBI conference, the Prime Minister defended last week’s quarter- point rise in base rates.

Most City commentators predicted that the Bank’s Monetary Policy Committee (MPC) will raise interest rates again to be sure of squeezing the economy enough to bring inflation back on course. One leading economist warned business leaders gathered for the Confederation of British Industry’s conference that the cost of borrowing might have to go as high as 8 per cent to choke off inflationary pressures. Gavyn Davies, chief international economist at Goldman Sachs, said there was no evidence that the breakneck economic growth was slowing, that capacity utilisation was rising and skills shortages were spreading.
“I conclude from all this that the Bank was right to raise base rates last Thursday and that there is a strong case for further increases in base rates over the next six months,” he said.He was joined by other experts reacting to yesterday’s disappointing figures. Headline inflation climbed to a two-year high last month, and the underlying measure moved further away from the Government’s target, according to new figures published on the eve of the Bank of England’s quarterly Inflation Report. After a pounds 29m hit from sterling, trading profits fell 1 per cent to pounds 414m, two thirds of the total.In retailing, where brands include Victoria Wine, Firkin pubs and the Baskin Robbins and Dunkin’ Donuts franchises, profits rose 5 per cent to pounds 232m.Outlook, page 25.

Both are returning to their head office roles.At constant exchange rates, the spirits arm, which includes Ballantines whisky, Beefeater gin and Kahlua among its brands, saw profits rise 6 per cent last year Margins rose from 15.5 to 16.3 per cent. Yesterday they closed 27p higher at 508p as analysts focused on the mooted changes.In keeping with its peers Allied has suffered from flat demand around the world for spirits but it is also perceived to have a worse portfolio of drinks than its main rivals and to have been poorly managed.Analysts increased forecasts for the current year after the results announcement but said the numbers were less important than yesterday’s messages about the future direction of the group and its management.Sir Christopher gave his backing to the company’s chief executive, Tony Hales, and the finance director, Tony Trigg, who have come under mounting pressure from investors as the performance of Allied has lagged its rivals. The company’s shares have underperformed the market by 60 per cent over the past five years, trailing even its struggling peers by 30 per cent over that period. Sir Christopher said the results marked a “turning point” for the group, which has underperformed the market and the rest of the sector for many years.The realisation that things need to change is long overdue for many of Allied’s increasingly frustrated investors. He hinted at Allied’s increasing warmth towards the idea of a demerger by saying: “the issue is more a matter of pragmatism than of principle”.Another development likely to encourage Allied to entertain a demerger is the expected abolition of advance corporation tax (ACT), which has so far acted as a serious disincentive to splitting the group up.

Because Allied’s spirits profits are largely made overseas, the group needs sizeable UK profits against which to offset its overseas tax bill. Any abolition of ACT would eliminate that problem.Allied’s strategic options were outlined yesterday as the group announced better-than-expected results for the year to August. Profits before tax rose 6 per cent to pounds 607m, while a lower tax charge boosted earnings per share by 18 per cent to 39.1p. Analysts believe the group has no option other than finding a strong partner to enable it to compete with Diageo’s massive marketing muscle and global brands.
Diageo will have sales following the merger of 108 million cases a year, more than twice Allied’s 47 million. Seagram, the third group, sells 41 million, with no other group reaching 30 million cases.Sir Christopher said yesterday that a demerger of the spirits side from Allied’s smaller pubs and fast-food franchising operations was not a necessary precursor to an alliance, but he admitted that it might be a “facilitator”.

Speculation about an alliance with Seagram has swirled around the struggling group ever since Guinness and GrandMet joined forces to create a group with more than twice Allied’s sales. Women almost start crying in the shop when they open the magazine,” one shop owner said The British princess never visited Albania

– Reuters, Tirana. Sir Christopher Hogg, who joined Allied Domecq as chairman 18 months ago, said the retailing and spirits group was actively considering all its options, including the break-up it rejected only last year. The recently announced merger of Grand Metropolitan and Guinness to form Diageo had changed the trading landscape for Allied, he said, and made the need for a tie-up with another spirits company more pressing. The move follows days of unrest in Brussels sparked off after police fatally shot an alleged Moroccan drugs dealer on Friday. Hundreds of mainly North African immigrant youths have clashed with armed police, smashing windows and overturning cars in Brussels, and the disturbances have spread outside the capital.