Thanks for your replies. I think I will move to an iPhone of some description whatever happens.
Given that I can get a new iPhone 4 for £160 (as part of a contract), is there anything stopping me from selling it for around £350-400 and putting that money towards the iPhone 5 when it comes out? Or would the 5 be too expensive to make it worthwhile?
I think it would be very hard to sell an used iPhone 4 for £350, even if it in mint condition. If the next generation iPhone is spectacular, as it is expected to be, I think the market will be flooded with the iPhone 4S making the iPhone 4 less desirable and more difficult to sell on.
Honestly, If I were you, I'd wait for the next iPhone (speculated to arrive september/october). If you can afford it and you like it, go for that and enjoy a proper iPhone experience with the latest and greatest iPhone. If you can't afford it, iPhone 4S will be available to you cheaper than it is now with most, if not all of the features of iOS6.
Also, in the UK, it can work out quite cheap, relatively speaking, to buy the phone unlocked outright from Apple (assuming you have the cash available) and then picking up a sim only contract.
Here's mine:
iPhone: £500
Contract: £10/month (300 minutes, unlimited texts, 1gb data)
Cost over 2 years: £500 + (£10*24 months) = £740
Effective Cost/month: ~£30
In summary: Don't buy an iPhone now. Wait a few months till around october. See what is available -> have a look at your funds -> decide on the new iPhone or an iPhone 4S