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Inflation drops to four-year low in February

ANNUAL UK inflation fell further below the 2% target in February, dropping to 1.7% from 1.9% in January, official figures have shown.

The latest annual UK consumer prices index (CPI) inflation rate, published by the Office for National Statistics (ONS) yesterday, was the lowest since October 2009 and was bang in line with City expectations.

But it continued to exceed annual earnings growth. According to the ONS, the average weekly wage in the November to January period, including bonuses, was up 1.4% on a year earlier.

The inflation data did nothing to alter economists' view that the Bank of England's Monetary Policy Committee was likely to hold UK base rates at a record low of 0.5% until into next year.

Petrol and diesel prices exerted significant downward pressure on the annual CPI inflation rate between January and February.

The ONS noted petrol prices had risen by 0.8 pence per litre between January and February this year, having increased by 4p-a-litre between the same two months of 2013. Prices in the clothing and footwear category rose by less last month than in February 2013.

Consultancy Capital Economics forecast annual CPI inflation could fall "to 1% or so" later this year.

Capital Economics' Samuel Tombs said: "Not only would this support the recovery by boosting real incomes, it would also enable the MPC to keep official interest rates on hold until well into next year."

He cited a fall in annual UK factory gate price inflation from 0.9% in January to 0.5% in February, unveiled by the ONS yesterday.

Mr Tombs added: "Past movements in global agricultural commodity prices and announcements of planned price cuts by supermarkets suggest food inflation could fall towards zero this year. Two more utility companies will lower their prices in the next few months."

On the old all-items retail prices index measure, annual inflation eased from 2.8% in January to 2.7% in February.

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