The rate of inflation in the UK fell slightly to 3.1 percent in July compared to 3.2 percent in June. While prices continue to rise, the rate of increase has slowed in each of the past three months.
Despite the slowing of price increases, inflation still continues to exceed the target rate of 2 percent. This fact requires Bank of England Governor Mervyn King to issue an “open letter” to the Chancellor of the Exchequer to explain why inflation remains above the target. In his letter to the Chancellor, King alluded to an increase in the Value Added Tax (VAT) rate to 17.5 percent from 15 percent, and an increase in energy prices as the chief reasons for the higher inflation rate. King also noted that “there remains a significant probability that I will need to write further open letters to you in the coming months”.
Source: BBC News 
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