The UK Consumer Price Index (measure of inflation) hit 3.2 per cent in October due to a number of factors. The Office of National Statistics found the following as cause for the rise in inflation: diesel and petrol, financial services and games, and toys and hobbies.

Mervyn King, Governor of Bank of England, now has the responsibility of notifying the Treasury since the CPI remains more than 1 per cent over the 2 per cent target. He must keep the Treasury abreast of the CPI if it stays a minimum of 1 per cent over the target rate. By sending a letter every three months, the Chancellor remains informed.

King discussed the focus of the letter, saying: "At its November meeting, the MPC judged that it was appropriate to maintain the stance of policy that it has adopted for the past year, that is to keep Bank Rate at 0.5% and maintain the stock of purchased assets financed by the issuance of central bank reserves at £200bn.

"But the committee is ready to adjust policy - in either direction - in order to ensure that the risks to the outlook for inflation in the medium term remain evenly balanced around the 2% target."

The Monetary Policy Committee expects that the estimated increase in the VAT in January 2011 to 20 per cent, will likely enable inflation to stay at an elevated rate.

King mentioned: "Indeed, over the next few months the inflation rate might rise further."

Samuel Tombs, UK economist of Capital Economics, sees pressure building again on inflation, saying: "The rise in CPI inflation from 3.1% to 3.2% primarily reflected higher petrol prices, which added about 0.1% to CPI inflation.

"Nonetheless, there are some encouraging signs that price pressures remain contained in other parts of the economy.

"Food price inflation fell from 4.9% to 4.2%, despite recent trends in imported food prices. Core inflation held steady at 2.7%, perhaps suggesting that retailers are struggling to pass large price rises onto consumers ahead of the VAT hike in January.

"Admittedly, with inflation for now still high and rising, today’s figures are another sign suggesting that the MPC may have to wait a few more months before restarting QE.

"But with the recovery set to fade and medium term price pressures still relatively subdued, we still think that the MPC will sanction more QE in the first half of next year."