Since gaining independence, the Bank of England’s investors have been more sceptical of the way the bank tackles inflation.

The widening gap between the yields on index-linked government bonds and conventional gilts indicates bon-market investors are willing to pay much higher prices for inflation protection. As Britain enters its most inflationary period for more than a decade this suggests doubts about the credibility of the monetary framework.

Ex-chief economic adviser to the chancellor, and current children’s secretary, Ed Balls described inflation expectations in bond markets as the “most important” test of credibility and confidence in monetary policy.

Paul Dales of Capital Economics said the gap could be the “first sign that the markets are starting to lose faith in the ability of the UK’s policymakers to deliver a low and stable inflation environment”.

Alongside rising surveys of household inflation expectations and corporate pricing intentions, economists said there was a greater risk of higher inflation returning to normal British life.

“In every measure you look at, inflation expectations have already moved out of the range they have occupied in the last eight or nine years.” Malcolm Barr of JPMorgan said.

Sensing that a loss of confidence in the UK from abroad is under way after sterling’s continued decline, Danny Gabay of Fathom Consulting said: “The … markets believe the ‘macro policy miracle’ [since 1997] is more style than substance”.

Over a 20-year period, the government bond market now expects retail price inflation to average 3.76 percent, according to Bank of England figures, compared with 3.47 percent on the last trading day before Gordon Brown announced Bank independence. By comparison, the 20-year expectations two years ago were just 2.85 per cent.

The warning issued by Mervyn King, the Bank’s governor, that the “nice” decade (of non-inflationary constant expansion) was over has prompted other economists to offer their own acronyms. Few yet expect a recession, but Michael Saunders of Citigroup said times will be “vile” – “volatile inflation, less expansionary”.

Urging policy makers to fight higher inflation, Jean-Claude Trichet, president of the European Central Bank said, soaring oil and food prices had created “demanding times, challenging times”, and that the challenge was to ensure the pressures did not create lasting “second-round effects” by feeding through into wage deals.

Mistakes made at the time of the first “oil shock” in the 1970s had “enshrined the high level of inflation for a long period” and led to mass unemployment. Mr Trichet sounded the alarm on inflation even as he acknowledged that financial markets were still witnessing an “ongoing, very significant market correction”.