UK inflation falls sharply down to 3%

Inflation fell back sharply in February as prices rose by less than a year ago, official figures showed today.

The Consumer Prices Index eased to 3% from a 14-month high of 3.5% in January, the Office for National Statistics (ONS) said.

Prices for items such as petrol and household goods saw smaller increases than 12 months earlier, while British Gas also cut gas prices, the ONS said.

The ONS added that toys and games also dampened inflation this year as prices were unchanged compared with a big increase in costs a year ago.

But factors such as the VAT cut - and subsequent return to 17.5% in January - have introduced volatility into the monthly figures, as well as the desperate measures undertaken by firms to survive the worst of the recession last year.

Far less discounting by retailers this year than 12 months ago - when most shops were slashing prices to tempt in consumers - put upward pressure on the cost of living in January, alongside the rise in VAT.

Meanwhile, prices across the board rose at a far lower rate between January and February than during the same period last year, when CPI inflation surged at a record monthly rate of 0.9%.

Petrol prices rose by a record 3.2p per litre a year ago to stand at 89.5p, although this time round average prices rose by a far smaller 0.9p. Food and drink costs also rose by less than a year ago.

The only major upward impact on inflation this month came from women's clothing, where prices rose by more than a year ago.

Today's fall in CPI is slightly bigger than the drop to 3.1% expected by the City.

The Bank of England expects inflation to continue to fall to below its 2% target in the months ahead, as the economic slack opened up by the recession drags down prices.

Howard Archer, economist at IHS Global Insight, said today's bigger than expected fall in CPI would be "pretty well received" by the Bank of England and ease concerns among some rate-setters over inflation risks.

He said: "February's moderation in consumer price inflation was primarily due to utility price cuts and the fact that food prices rose much less than a year ago.

"It is also likely that many retailers put prices up less this February than a year ago following the ending of the post-Christmas clearance sales as there was less sharp and extensive discounting in the sales in the first place."