Most inflation is being caused by indirect taxation by the state
Back in February 2009, the Bank forecast that the inflation rate today would most probably be between 0% and 1%. They reckoned there was a 1-in-4 chance that prices would actually be falling (i.e. the Dreaded Deflation), and the chance of inflation being over 2% was put at well under 1-in-10.
Crank forward to February 2010 (just 9 months ago), and the Bank had nudged up their forecasts a bit - they now said inflation would most likely be between 0.5% and 1.5% by now. But they still thought there was a good chance of lower inflation, and still a 1-in-5 chance of deflation (despite the fact that the printing presses had been running in overdrive for a year).
And now? Well, today's CPI inflation has actually turned out to be over 3%. And even the Bank's own November forecast acknowledges its back on a rising track.
U.K. Chancellor of the Exchequer George Osborne said Tuesday that the government is in discussions with banks to ensure they make a material and verifiable increase in lending to businesses, especially smaller firms.