Mervyn King, governor of the Bank of England, predicts the UK’s inflation rate will rise above 3% in the coming weeks with the increase in VAT and higher petrol costs. However, he also expected “a gradual recovery” in the UK economy over the coming year.

“The UK economy has continued to bump along the bottom,” Mr King said. “But a gradual recovery in output may now be in prospect.”

Don’t get too excited though – he added that economic growth was unlikely to return to the levels seen before the economic crisis for “a considerable period”.