Inflation in surprise drop

Consumer price inflation fell unexpectedly in March, after a month-on-month decline in the cost of food and drink outweighed higher housing and utility costs, the Office for National Statistics said on Tuesday.

The first fall in the CPI rate since July last year will provide much-wanted reassurance for the Bank of England that inflation is not spiralling out of control, though inflation is still twice the BoE's target.

Consumer price inflation has been above the Bank of England's two per cent target since December 2009, and the central bank has warned that it may rise to five per cent this year.

The Office for National Statistics said consumer prices rose by four per cent last month, its lowest annual rate of increase since January.

Analysts had expected the annual rate to hold steady at 4.4 per cent, a 28-month high reached in February.

The retail price inflation gauge, which includes more housing costs and is the benchmark for many wage deals, slowed 5.3 versus a forecast rise of 5.5 per cent.

The Bank of England, which says most of the factors pushing up prices are only temporary, faces a tricky balancing act of taming inflation over the medium term without damaging a fragile recovery at a time of public spending cuts, tax rises and economic uncertainty.

Last week, the BoE opted to hold rates at a record low of 0.5 per cent, breaking step with the European Central Bank which raised the cost of borrowing for the first time since the 2008 financial crisis.

Britain's goods trade deficit with the rest of the world unexpectedly narrowed in February to its smallest since February 2010 at £6.776bn, separate statistics showed on Tuesday. Economists had forecast a deficit of £8.1bn.