Welcome back, you're watching Channel 4 News. Now controlling inflation has been at the very heart of the government's claims of economic competence. But today for the first time in ten years, the rate of inflation rose above Gordon Brown's target. The Bank of England has the job of meeting that target and the governor has now had to write to the Chancellor explaining what's gone wrong. In his letter, Mervyn King talks of growing price pressures within the economy and most economists believe more interest rate rises are imminent. Our economics correspondent Faisal Islam explains.

For ten years, the Bank of England has built an unrivaled reputation for maintaining economic stability through low inflation. But is that now melting away as inflation surges to nearly 1% over the European average? Does a shock breach of the Treasury-imposed target for inflation evaporate Britain's superior economic record?

"We have pretty strong economic growth overall. We have a period of very, very low interest rates, and inflations remain. But now, I think some of that is probably now starting to unravel. And if we continue to see decent rates of economic growth in this country and abroad, then that will not be combined any more with low interest rates. We won't be able to have our cake and eat it."

The government's target for inflation is an annual rates of 2%, but with a one percent margin of error either side. Over the last year, inflation has been rising towards the target's upper limit, but in the last two months, it seemed to be dropping back. Now today's figure has breached the government's targets for the first time ever. And it's all being driven by real factors within the economy. Food and drinks prices are rising at their highest annual rates for 6 years. Furniture and household equipment prices too are racing ahead at a ten-year high. On the Treasury preferred measure, it's the highest rates of inflation for a decade. The Retail Price Index, which includes mortgage costs, is at 4.8%, a 16 year high.

"The governor's letter makes it perfectly clear that this is not just a temporary blip. At least half of the inflation, which is recorded, is caused by the big expansion of money in credit and personal debts in the economy. And of course there is a lot of hidden inflation which isn't captured in these figures in the form of a massive boom in the housing market."

The letter from the governor of the Bank of England, says he is determined to bring inflation back to target. That's likely to mean rates up from 5.25% within weeks. Some in the city see an augment for the first half a percent rise since 1994. Yet the reply by the Chancellor for this first breach of his system is relaxed and non-punitive. The Treasury has no interests in complaining too loudly.

"Gordon Brown is handing over the power to set your interest rates, to the boss of the Bank of England, the root of Britain's perceived economic success over the past ten years. It's kept inflation low until today. Well, on the Treasury's own measure, we've had our first failure. A small one? Yes. A temporary one, say both institutions. But it couldn't have come at a worse time for Gordon Brown."

"Inflation is on the rise. Unemployment has been rising in this country. We are not as competitive as we should be against countries like China and India. So that reputation for economic competence which Gordon Brown boasted of for so many years is now unraveling before our eyes and people out there in the real economy know it."

Since he arrived at the Treasury, Mr. Brown has joked that there are two types of Chancellor: those who fail and those who get out in time. The man who's kept him waiting at number 11 lets to his defense today.

"Namely a better Chancellor since the Second World War of this country. He's produced the longest period of economic growth, interest rates half of what they were, two and a half million extra jobs, unemployment cut dramatically and massive investment in public services."

Today's news augurs choppier economic waters ahead. It's a problem we forgot was there. The Bank of England will have to deal with it, which could make life tough for a Prime Minister Brown.

I'm not a candidate…

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blip:n. A temporary or insignificant phenomenon, especially a brief departure from the normal.
eg:The decline in the share of GNP going to health . . . appears to be a one-time blip in the historic trend rather than the start of a new trend(Atlantic)