UK inflation at record low

The annual rate of inflation in the UK has fallen sharply to 1.8%, the lowest level since the current system of measuring consumer prices began in 1976.

In January, the underlying rate, which excludes mortgage interest payments, was down 0.2% from December, well below the financial markets' expectation of 2% and the government's target of 2.5%.

The headline rate, which includes mortgage payments, dropped by a similar amount to 2.7% and is likely to fall again as a result of the Bank of England's February quarter-point interest rate cut.

Inflation has been below target for 22 months. The Office for National Statistics says the main reason for the fall was a 4p per litre cut in unleaded petrol.

Reacting to the figures, the CBI said: "Business will be looking for further interest rate cuts although this will depend crucially on whether the tight labour market conditions start to increase wages and whether or not the chancellor delivers a cautious Budget in March." The TUC said the figures showed that the Bank of England could cut interest rates next time round.

House price depreciation and the resulting lower insurance and rent was the other factor pushing prices down.