According to Bank of England governor Mervyn King, inflation in the UK may rise ‘sharply’ over the next few months but is likely to fall back again in the medium term.

The increase would be triggered by VAT returning to 17.5% on 1 January 2010 and higher petrol prices. However, he believes inflation, which is currently at 1.1%, will then fall back in the medium term.

Presenting the Bank’s latest quarterly inflation report Mr King said the UK economy has ‘only just started’ down the road to recovery and lending by commercial banks would ‘probably remain weak over the next three years’.

His comments come a week after the Bank decided to pump an extra £25bn into the economy under its QE programme, bringing the total to £200bn.

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