King writes to Chancellor as inflation hits 3.5%

UK inflation has hit 3.5%, prompting Mervyn King to write a letter of explanation to the Chancellor.

In his letter, the Bank of England's Governor says the hike in inflation is largely due to the restoration of VAT at 17.5% and high oil prices. Inflation measured by the Consumer Prices Index (CPI) increased from 2.9% in December to 3.5% last month. The change is in line with the Bank of England's inflation predictions, published earlier this month. The 0.6% rise in CPI is the second largest-ever increase between two months. However, the Retail Prices Index (RPI) measure of inflation fell back, down to 3.7% from 3.8% at the end of 2009. Monetary Policy Committee members believe...