The UK's inflation rate will rise above 3% in the next few weeks, according to the governor of the Bank of England, Mervyn King.

In the Bank's quarterly inflation report, Mr King said the increase in VAT and higher petrol costs would push up prices.

In December the official rate of inflation reached 2.9%. If inflation moves above 3%, the governor is required to write a letter of explanation to the chancellor.

The chancellor was upbeat about the economy - which grew by just 0.1% in the last quarter - in the Bank's report.

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