Sainsbury’s has announced it will raise hourly pay in response to “particularly tough cost inflation” after retailers warned prices are likely to rise later this year.

The supermarket chain said it would increase wages by 5% from £12 an hour to £12.60 by August.

The latest official figures showed that UK inflation is rising at the fastest pace since March, driven by fuel and clothing.

But the British Retail Consortium lobby group has warned “there is little hope of prices going anywhere but up” in shops as retailers manage measures announced in the autumn Budget, including an increase in National Insurance for employers.

Chancellor Rachel Reeves said at the time said she had “decided the right thing to do was to ask businesses and the wealthiest in our country to pay a bit more”.

In a trading update for the key Christmas period, Sainsbury’s said it expected its full-year profit to rise by around 7% to more than £1bn.

For the festive period, comparable sales rose by 2.8%, lifted by food.