By Claire West

A double dip recession cannot be ruled out following this weeks announcement on inflation figures, warns Birmingham Chamber of Commerce and Industry (BCI).

Inflation remains well above the Bank of England's two per cent target at 3.1 per cent in July, an increase from 3.2 per cent on the previous month, and triggers another open letter from Governor Mervyn King to the Chancellor to explain the stubbornly high inflation.

The Office for National Statistics (ONS) said food prices jumped 0.7% between June and July, the biggest monthly rise for two years. But falling petrol costs and second-hand car prices over the month - in contrast with steep rises a year earlier - helped ease CPI overall.

Will Rogers, BCI policy adviser, said: "The cost of living is being pushed higher by increased energy costs, rising food prices and the return of VAT to 17.5%, from 15% a year ago.

"Unemployment did fall last week but there is no doubt that the economy remains extremely fragile, and it is likely unemployment figures will rise owing to public sector cuts.

"A double dip recession cannot be ruled out as growth is likely to be tempered by the continuing fiscal consolidation and the persistence of tight credit conditions.

"The forthcoming increase in the standard rate of VAT to 20 per cent will add to inflation throughout 2011. High food and petrol prices will also continue to play a part."