However, this isn't strictly true. Overall prices have risen only by 0.4% down from 0.5% last month. However, it is house prices that are the main issue, which has risen by 10% (annually).
"Although pay pressures remain muted, the margin of spare capacity in businesses appears limited and most indicators of pricing pressure remain elevated. The committee judged that, relative to the 2% target, the balance of risks to the outlook for inflation in the medium term continued to lie to the upside."
The inflationary pressure is mostly likely caused by house prices, surely a case of demand-pull inflation. There's a market failure somewhere in that the private sector isn't jumping into the housing market to build new properties at the required rate. Perhaps this is a combination of local government planning permission problems as well as (maybe) cartel like behaviour.
Nonetheless, the government can step in and reduce house prices without punishing ordinary mortgage payers who barely get by as it is. Just fix the supply problem! Interest rates are a very blunt measure and will cost the economy down the line. The structural problems need to be solved and supply needs to increase. Gordon Brown has said he'd do this, lets hope he does.