UK inflation down to 3%

British Chancellor Alistair Darling gained a pre-Budget boost today after a sharper than expected fall in inflation in February.

Official figures showed a fall in the Consumer Prices Index (CPI) benchmark to 3% from a 14-month high of 3.5% in January as prices rose by less than a year ago.

The fall will also soothe concerns over the recent inflation spike lingering longer than expected and building pressure at the Bank of England for rate hikes.

Many experts now forecast borrowing costs on hold at their current 0.5% record low until the end of the year, helping to shore up a fragile economic recovery.

Jonathan Loynes, chief European economist at Capital Economics, said price pressures in the UK economy "remain encouragingly subdued".

David Kern, chief economist at the British Chambers of Commerce, warned: "The economy remains weak, businesses are still facing serious pressures, and it would be wrong for the Monetary Policy Committee to contemplate early interest rate rises."

The pound dropped below 1.50 against the dollar soon after the figures as markets weighed up the still-distant prospect of rising rates.

The Office for National Statistics (ONS) said inflation was dragged down by smaller price rises for items such as petrol, household goods and food than a year earlier, while average gas bills fell.