The inflation rate in the UK increased to 3.5% in January from the previous month's 2.9%, according to figures released by the Bank of England.

This rise in the Consumer Price Index (CPI) inflation from December to January is the fastest annual rise in 14 months. It was driven up by VAT returning to 17.5% and higher petrol prices.

Bank of England governor Mervyn King will now have to write a letter of explanation to the chancellor to explain why the inflation rate is above the Bank's target. The Bank had already warned that inflation could rise to 3.5% this year - though predicts it will fall back below the 2% target.

Retail Price Index (RPI) inflation, which includes housing costs, increased to 3.7% in January, up from 2.4%.

"The rise in inflation, to a level necessitating an explanatory letter from the Bank Governor to the Chancellor, was widely predicted. In fact, the actual January outcome was marginally lower than many analysts expected," said David Kern, Chief Economist at the British Chambers of Commerce.

"By maintaining its current position, the MPC would make it easier for the Chancellor to present a more detailed plan for cutting the UK's huge deficit in next month's Budget - something that businesses across the country urgently want to see."