Britain's benchmark Consumer Prices Index (CPI) rate of inflation rose to 3.5 percent year-on-year in January, according to official figures released on Tuesday, pushed to the 14-month high by an increase in Value Added Tax (VAT) to 17.5 percent, higher oil costs and the effects of sterling's depreciation.
The rise comes after December's rise in the CPI of 0.6 percent, which took it to 2.9 percent. This latest rise to 3.5 percent has led to Mervyn King, governor of the Bank of England (BoE), Britain's central bank, to write a public letter of explanation to Alistair Darling, the chancellor of the exchequer.
King forecast that inflation was likely to fall back towards its target level of 2 percent later in the year.
In his letter to the chancellor, King outlined the causes of the rise. "Three short-run factors have driven the current measured rate of inflation up. First, the restoration of the standard rate of VAT is raising prices relative to a year ago."
"Second, over the past year, oil prices have risen by around 70 percent. That is pushing up petrol-price inflation significantly, which, in turn, is raising overall CPI inflation."
"Third, although the exchange rate has been broadly stable over the past year, the effects of the sharp depreciation of sterling in 2007 and 2008 are continuing to feed through to consumer prices."
King said that the BoE Monetary Policy Committee (MPC), which sets interest rates, expected the current rate of inflation to be only temporary with spare capacity in the economy pulling inflation down.
King added that in the medium term inflation was "more likely than not" to slip below the 2 percent target for a period./.