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The UK is definitely having a hard time of it lately. House prices are falling dramatically across the country and food and fuel prices are increasing so much that it has caused lorry drivers to take a stand – driving at slug’s pace on the motorway’s.

But this isn’t all. Today, the Governor of the Bank of England, Mervyn King, had to put pen to paper and write a letter to the Chancellor, Alistair Darling, explaining why inflation has reached 3.3 per cent – way above the Government’s two per cent target.

Over recent months we have seen the Monetary Policy Committee cutting interest rates (which now stands at five per cent), a move that may strike many as somewhat backwards - considering that the way to reduce inflation is to increase interest rates.

But, King is one step ahead of us – his letter points out that, ‘When setting Bank Rate the Committee has faced a balancing act between two risks. On the upside, the risk that above-target inflation could persist explains why the Committee has not responded more aggressively to signs that the economy is slowing. On the downside, the risk is that the slowdown could be so sharp that inflation did not just return to the target but was pulled below.’

However, it still seems that the maths are just not adding up. If fuel prices have gone up by 20 per cent, food prices have risen by 7-8 per cent and energy has increased by 14 per cent, how has inflation only increased to 3.3 per cent?

This is simply a result of how the Government chooses to measure inflation – the Consumer Prices Index. However, this index conveniently misses out those things that have the biggest impact on inflation – petrol, council tax, utilities and housing costs.

All is explained if we take a sneaky peak at the real inflation indicator – the Retail Price Index. According to the Office of National Statistics, the RPI is 4.3 per cent – a much more realistic figure.

In a recent statement our Prime Minister, Gordon Brown, claimed that he was the man to get the country through this economic slowdown stating that he had done it before and will do it again. However, much of his ‘success’ as Chancellor came from switching the index used to measure inflation – when the switch was made, the CPI was running at 1.3 per cent, whereas the RPI was 2.8 per cent.

So yes, throughout his 10 years as Chancellor we may have seen lower interest rates and lower inflation figures, but that doesn’t mean that he has all of the answers and while the Governor and the Chancellor exchanges niceties the British public will simply have to cope with the rising costs of living.

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