UK price inflation hit 4 per cent in January, twice the Bank of England’s target of 2 per cent. Bank governor Mervyn King defends his own policy in his letter of explanation to Chancellor George Osborne, while warning of the risk of undershooting the target in the medium term if interest rates are raised with drastic austerity cuts to come. Lex's John Authers and Vincent Boland discuss if this is the best way of setting monetary policy.