Inflation slip cuts rate rise odds

INFLATION fell back below the Bank of England's 2.5% target in February, further dampening expectations of an immediate rise in interest rates.

National Statistics figures today showed that underlying inflation, stripping out mortgage interest repayments, slipped to 2.2% last month compared with January's worrying surge to 2.6%.

Much of the slide was due to an unwinding of the previous month's rise in seasonal food prices, while the relatively small amount of discounting in clothes shops in January's sales meant the February bounce back was smaller than last year's. Price cuts also came from leisure goods such as CDs and toys as well as entertainment and recreation.

All-items inflation fell to 1% in the year to February from 1.3% the previous month although petrol and oil prices jumped 0.2% between January and February. The underlying rate was slightly better than the 2.4% analysts had expected.

'These are good figures, but inflation isn't dead,' said Merrill Lynch economist Michael Taylor. Service-sector inflation, while slightly lower than in the previous month, was still running at 4.5%, he pointed out.

SWEDEN today became the first industrialised nation to increase the cost of borrowing in a move seen as a seachange in central banks' thinking on the global economic recovery. Its Riksbank pushed rates up to 4% from 3.75%, hours before the US Federal Reserve was expected to make positive noises about the prospects for the US economy.