They claim Apple didn't reduce the prices but AT&T increased their subsidy.
Here they said the wholesale price in sterling is the same for the 3G S.
Here, after being pushed, they go on to say that "overall wholesale sterling prices are essentially the same" but the 16GB 3GS is slightly more expensive.
This doesn't explain why the 16GB 3G S is £29.37 more than the 16GB 3G was on a £45 18 month contract or why it is £29.36 more than the 16GB was on a £35 18 month contract.
In regards to the £45 18 month contract deal, the iPhone 3G now costs over 50% more (£87.11 vs £57.74).