Inflation fall disappoints stock market

INFLATION fell less sharply than expected last month, as high street prices rebounded after the January sales, writes Robert Chote. This dimmed hopes of an early interest rate cut and sent shares plunging.

Retail prices rose by 2.4 per cent in the year to February, down from 2.5 per cent in the year to January, according to the Central Statistical Office. However, some economists predicted that retailers would not be able to make higher prices stick.

The City had expected inflation to fall to 2.2 per cent and the stock market concluded that Kenneth Clarke, the Chancellor, would find it difficult to justify another cut in interest rates to offset next month's tax increases. The FT-SE index of 100 leading London shares closed 46.2 down on the day at 3,155.3.

Gilts fall, page 35

View from City Road, page 36

Kippers leave the RPI, page 37