bro, most probably u are having a jevy iphone 4! dont update the software version of ur fon without proper knowledge about preserving the baseband of it, coz if u do so without it you will end up having a permenantly locked iphone! as unlocking price of O2 UK phones is about 12-15k
and about your problem, go to sum cellphone market and get a new gevy for it, i think your gevy has got old now and needs a replacement