High street price cuts slows inflation

Inflation fell unexpectedly last month as retailers continued to cut prices across the high street after the end of the January sales, official figures showed yesterday.

Inflation fell unexpectedly last month as retailers continued to cut prices across the high street after the end of the January sales, official figures showed yesterday.

The Office for National Statistics said the consumer price index rose by just 1.3 per cent on a year earlier, down from 1.4 per cent in January. Analysts had predicted it would remain steady.

Analysts said the drop made an imminent increase in interest rates less likely but warned it would not be enough to stop the Bank of England raising borrowing costs again this year.

The ONS said clothing and footwear prices were the main culprits for the slowdown as retailers continued special offers, particularly on women's clothing, while menswear prices did not rise as much as normal.

There were also price falls for items such as toys, garden products and photographic equipment. For the first time this category includes digital cameras, whose prices have fallen sharply over the past year.

But in a sign of the continued strength of housing, furniture prices rose strongly after the new year sales - at the fastest annual pace since March 2002.

Interest rate futures ticked higher as dealers said the surprise fall would make it harder for the Bank's Monetary Policy Committee to justify rate rises in the months ahead.

But Simon Rubinsohn, the chief economist at Gerrard stockbrokers, said it was "a reasonable working assumption" that inflation would edge upwards if economic growth continued to exceed the long run trend.

RPIX, the measure of inflation the Bank used before Gordon Brown, the Chancellor of the Exchequer, changed the mandate in December, also slowed in February to 2.3 per cent from 2.4 per cent the month before.